Module 2 and 3

Unit - I
Production function – an Introduction – Definitions and types of production systems.

Strategic Management – corporate strategies, production strategies, World class
manufacturing, demand forecasting for Operations.
MEANING OF PRODUCTION MANAGEMENT:
Production Management refers to the application of management principles to the
production function in a factory. In other words, production management involves application of
planning, organizing, directing and controlling the production process.
Production management also deals with decision-making regarding the quality, quantity,
cost, etc., of production. It applies management principles to production.
Production management is a part of business management. It is also called "Production
Function." Production management is slowly being replaced by operations management.
DEFINITION OF PRODUCTION MANAGEMENT:

It is observed that one cannot demarcate the beginning and end points of Production
Management in an establishment. The reason is that it is interrelated with many other functional
areas of business, viz., marketing, finance, industrial relation policies etc.
Alternately, Production Management is not independent of marketing, financial and
personnel management due to which it is very difficult to formulate some single appropriate
definition of Production Management.
―Production Management is the process of effective planning and regulating the
operations of that section of an enterprise which is responsible for the actual transformation of
materials into finished products.‖
This definition limits the scope of production management to those activities of an
enterprise which is associated with the transformation process of inputs into outputs. & the
definition does not include the human factors involved in a production process. It lays stress on
materialistic features only.
Production Management deals with decision-making related to production process. So
that the resulting goods and services are produced in accordance with the quantitative
specifications and demand schedule with minimum cost.
FUNCTIONS OF PRODUCTION MANAGEMENT:

The definitions discussed above clearly shows that the concept of production management is
related mainly to the organizations engaged in production of goods and services. Earlier these
organizations were mostly in the form of one man shops having insignificant problems of
managing the productions.
But with development and expansion of production organizations in the shape of factories more
complicated problems like location and lay out, inventory control, quality control, routing and
scheduling of the production process etc. came into existence which required more detailed
analysis and study of the whole phenomenon.
This resulted in the development of production management in the area of factory management.
In the beginning the main function of production management was to control labour costs which
at that time constituted the major proportion of costs associated with production.
But with development of factory system towards mechanization and automation the indirect
labour costs increased tremendously in comparison to direct labour costs, e.g., designing and
packing of the products, production and inventory control, plant layout and location,
Prepared By: K.Vinoth, Asst.Prof, DoMS, Srinivasan College of Arts & Science, Perambalur. 1
transportation of raw materials and finished products etc. The planning and control of all these
activities required more expertise and special techniques.
IMPORTANCE OF PRODUCTION MANAGEMENT

(i) Design and development of production process.
(ii) Production planning and control.
(iii) Implementation of the plan and related activities to produce the desired output.
(iv) Administration and co-ordination of the activities of various components and departments
responsible for producing the necessary goods and services.
However, the responsibility of determining the output characteristics and the distribution strategy
followed by an organization including pricing and selling policies are normally outside the scope
of Production Management.
OBJECTIVE OF PRODUCTION MANAGEMENT

The main objective of production management is to produce goods and services of the
right quality, right quantity, at the right time and at minimum cost. It also tries to improve the
efficiency. An efficient organisation can face competition effectively. Production management
ensures full or optimum utilisation of available production capacity.
SCOPE OF PRODUCTION MANAGEMENT

Production concern with the conversion of inputs into outputs, using physical resources,
so as to provide the desired utilities to the customer while meeting the other organizational
objectives of effectiveness, efficiency and adoptability. It distinguishes itself from other
functions such as personnel, marketing, finance, etc., by its primary concern for ‗conversion by
using physical resources.‘ Following are the activities which are listed under production and
operations management functions:
1. Location of facilities
2. Plant layouts and material handling
3. Product design
4. Process design
5. Production and planning control
6. Quality control
7. Materials management
8. Maintenance management
PRODUCTION SYSTEM
INTRODUCTION OF PRODUCTION SYSTEM
The production system of an organization is that part, which produces products of an
organization. It is that activity whereby resources, flowing within a defined system, are
combined and transformed in a controlled manner to add value in accordance with the policies
communicated by management. A simplified production system is shown above.The production
system has the following characteristics:
1. Production is an organized activity, so every production system has an objective.
2. The system transforms the various inputs to useful outputs.
3. It does not operate in isolation from the other organization system.
4. There exists a feedback about the activities, which is essential to control and improve system
performance.
PRODUCTION FUNCTION:
INTRODUCTION
Production is the result of co-operation of four factors of production viz., land, labour, capital
and organization.
This is evident from the fact that no single commodity can be produced without the help of
any one of these four factors of production.
Therefore, the producer combines all the four factors of production in a technical proportion.
The aim of the producer is to maximize his profit. For this sake, he decides to maximize the
production at minimum cost by means of the best combination of factors of production.
The producer secures the best combination by applying the principles of equi-marginal
returns and substitution. According to the principle of equi-marginal returns, any producer can
have maximum production only when the marginal returns of all the factors of production are
equal to one another. For instance, when the marginal product of the land is equal to that of
labour, capital and organisation, the production becomes maximum.
MEANING OF PRODUCTION FUNCTION:

In simple words, production function refers to the functional relationship between the
quantity of a good produced (output) and factors of production (inputs).
―The production function is purely a technical relation which connects factor inputs and
output.‖ Prof. Koutsoyiannis
Defined production function as ―the relation between a firm‘s physical production
(output) and the material factors of production (inputs).‖ Prof. Watson
In this way, production function reflects how much output we can expect if we have so
much of labour and so much of capital as well as of labour etc.
In other words, we can say that production function is an indicator of the physical
relationship between the inputs and output of a firm.
The reason behind physical relationship is that money prices do not appear in it.
However, here one thing that becomes most important to quote is that like demand function a
production function is for a definite period.
It shows the flow of inputs resulting into a flow of output during some time. The
production function of a firm depends on the state of technology. With every development in
technology the production function of the firm undergoes a change.
The new production function brought about by developing technology displays same inputs and
more output or the same output with lesser inputs. Sometimes a new production function of the
firm may be adverse as it takes more inputs to produce the same output.
Mathematically, such a basic relationship between inputs and outputs may be expressed
as: Q = f( L, C, N )
Where Q = Quantity of output
L = Labour C = Capital N = Land.
Hence, the level of output (Q), depends on the quantities of different inputs (L, C, N) available to
the firm. In the simplest case, where there are only two inputs, labour (L) and capital (C) and one
output (Q), the production function becomes.
Q =f (L, C)
DEFINITIONS:
―The production function is a technical or engineering relation between input and
output. As long as the natural laws of technology remain unchanged, the production function
remains unchanged.‖ Prof. L.R. Klein
―Production function is the relationship between inputs of productive services per unit
of time and outputs of product per unit of time.‖ Prof. George J. Stigler
―The relationship between inputs and outputs is summarized in what is called the
production function. This is a technological relation showing for a given state of technological
knowledge how much can be produced with given amounts of inputs.‖ Prof. Richard J. Lipsey
Thus, from the above definitions, we can conclude that production function shows for a
given state of technological knowledge, the relation between physical quantities of inputs and
outputs achieved per period of time.
PRODUCTION SYSTEM
(The production system (function) of an organisation is that part which produces the
organisations products. Production is the basic activity of all organisations and all the other
activities revolve around production activity. The output of production is the creation of goods or
services, which satisfy the needs of the customer.
In some organisations the product is a physical (tangible) good. E.g. Refrigerators
motorcars,
Television, tooth paste etc, while in others it is a service (insurance, health care etc.)
The production system has the following characteristics.

1. Production is an organised activity, so every production system has an objective.
2. The system transforms the various inputs (men, material, machines, information, and energy)
in to useful Outputs (Goods or Services.)
3. Production system does not operate in isolation from the other organisational systems such as
finance, marketing etc.
4. There exists a feedback about the activities, which is essential to control and improve system
performance.
Adjustment needed Random Fluctuations Monitor output
Inputs Men
Materials
Conversion Output
Machines
Process Goods Services
Information
Energy
Comparison of Actual
vs Desired
FEATURES OF PRODUCTION FUNCTION:
1. Substitutability:
The factors of production or inputs are substitutes of one another which make it possible to vary
the total output by changing the quantity of one or a few inputs, while the quantities of all other
inputs are held constant. It is the substitutability of the factors of production that gives rise to the
laws of variable proportions.
2. Complementarily:
The factors of production are also complementary to one another, that is, the two or more inputs
are to be used together as nothing will be produced if the quantity of either of the inputs used in
the production process is zero.
The principles of returns to scale is another manifestation of complementarily of inputs as it
reveals that the quantity of all inputs are to be increased simultaneously in order to attain a
higher scale of total output.
3. Specificity:
It reveals that the inputs are specific to the production of a particular product. Machines and
equipment‘s, specialized workers and raw materials are a few examples of the specificity of
factors of production. The specificity may not be complete as factors may be used for production
of other commodities too. This reveals that in the production process none of the factors can be
ignored and in some cases ignorance to even slightest extent is not possible if the factors are
perfectly specific.
Production involves time; hence, the way the inputs are combined is determined to a large extent
by the time period under consideration. The greater the time period, the greater the freedom the
producer has to vary the quantities of various inputs used in the production process.
In the production function, variation in total output by varying the quantities of all inputs is
possible only in the long run whereas the variation in total output by varying the quantity of
single input may be possible even in the short run
TYPES OR CLASSIFICATION OF PRODUCTION SYSTEM

Production systems can be classified as Job Shop, Batch, Mass and Continuous Production
systems.
Classification of production systems
Job shop production:
Job shop production are characterized by manufacturing of one or few quantity of products
designed and produced as per the specification of customers within prefixed time and cost. The
distinguishing feature of this is low volume and high variety of products.
A job shop comprises of general purpose machines arranged into different departments. Each job
demands unique technological requirements, demands processing on machines in a certain
sequence.
Characteristics
The Job-shop production system is followed when there is:
1. High variety of products and low volume.
2. Use of general purpose machines and facilities.
3. Highly skilled operators who can take up each job as a challenge because of uniqueness.
4. Large inventory of materials, tools, parts.
5. Detailed planning is essential for sequencing the requirements of each product, capacities for
each work centre and order priorities.
Advantages
Following are the advantages of job shop production:
1. Because of general purpose machines and facilities variety of products can be produced.
2. Operators will become more skilled and competent, as each job gives them learning
opportunities.
3. Full potential of operators can be utilized.
4. Opportunity exists for creative methods and innovative ideas.
Limitations
Following are the limitations of job shop production:
1. Higher cost due to frequent set up changes.
2. Higher level of inventory at all levels and hence higher inventory cost.
3. Production planning is complicated.
4. Larger space requirements.
Batch production:
Batch production is defined by American Production and Inventory Control Society
(APICS) ―as a form of manufacturing in which the job passes through the functional departments
in lots or batches and each lot may have a different routing.‖It is characterized by the manufacture
of limited number of products produced at regular intervals and stocked awaiting sales.
Characteristics
Batch production system is used under the following circumstances:
1. When there is shorter production runs.
2. When plant and machinery are flexible.
3. When plant and machinery set up is used for the production of item in a batch and change of
set up is required for processing the next batch.
4. When manufacturing lead time and cost are lower as compared to job order production.
Advantages
Following are the advantages of batch production:
1. Better utilization of plant and machinery.
2. Promotes functional specialization.
3. Cost per unit is lower as compared to job order production.
4. Lower investment in plant and machinery.
5. Flexibility to accommodate and process number of products.
6. Job satisfaction exists for operators.
Limitations
Following are the limitations of batch production:
1. Material handling is complex because of irregular and longer flows.
2. Production planning and control is complex.
3. Work in process inventory is higher compared to continuous production.
4. Higher set up costs due to frequent changes in set up.
Mass production:
Manufacture of discrete parts or assemblies using a continuous process are called mass
production. This production system is justified by very large volume of production. The machines
are arranged in a line or product layout. Product and process standardization exists and all outputs
follow the same path.
Characteristics
Mass production is used under the following circumstances:
1. Standardization of product and process sequence.
2. Dedicated special purpose machines having higher production capacities and output rates.
3. Large volume of products.
4. Shorter cycle time of production.
5. Lower in process inventory.
6. Perfectly balanced production lines.
7. Flow of materials, components and parts is continuous and without any back tracking.
8. Production planning and control is easy.
9. Material handling can be completely automatic.
Advantage
Following are the advantages of mass production:
1. Higher rate of production with reduced cycle time.
2. Higher capacity utilization due to line balancing.
3. Less skilled operators are required.
4. Low process inventory.
5. Manufacturing cost per unit is low.
Limitations
Following are the limitations of mass production:
1. Breakdown of one machine will stop an entire production line.
2. Line layout needs major change with the changes in the product design.
3. High investment in production facilities.
4. The cycle time is determined by the slowest operation.
Continuous production:
Production facilities are arranged as per the sequence of production operations from the first
operations to the finished product. The items are made to flow through the sequence of operations
through material handling devices such as conveyors, transfer devices, etc.
Characteristics
Continuous production is used under the following circumstances:
1. Dedicated plant and equipment with zero flexibility.
2. Material handling is fully automated.
3. Process follows a predetermined sequence of operations.
4. Component materials cannot be readily identified with final product.
5. Planning and scheduling is a routine action.
Advantages
Following are the advantages of continuous production:
1. Standardization of product and process sequence.
2. Higher rate of production with reduced cycle time.
3. Higher capacity utilization due to line balancing.
4. Manpower is not required for material handling as it is completely automatic.
5. Person with limited skills can be used on the production line.
6. Unit cost is lower due to high volume of production.
Limitations
Following are the limitations of continuous production:
1. Flexibility to accommodate and process number of products does not exist.
2. Very high investment for setting flow lines.
3. Product differentiation is limited.
STRATEGIC MANAGEMENT
Definition: The term ‗strategic management‘ is used to denote a branch of management that is
concerned with the development of strategic vision, setting out objectives, formulating and
implementing strategies and introducing corrective measures for the deviations (if any) to reach
the organization‘s strategic intent. It has two-fold objectives:
 To gain competitive advantage, with an aim of outperforming the competitors, to achieve
dominance over the market.
 To act as a guide to the organization to help in surviving the changes in the business
environment.
Here, changes refer to changes in the internal environment, i.e. within the organization,
introduced by the managers such as the change in business policies, procedures etc. and changes
in the external environment as in changes in the government rules that can affect business,
competitors move, change in customer‘s tastes and preferences and so forth.
Strategic Management Process
1. Defining the levels of strategic intent of the business:

 Establishing vision
 Designing mission
 Setting objectives
2. Formulation of strategy
 Performing environmental and organizational appraisal
 Considering strategies
 Carrying out strategic analysis
 Making strategies
 Preparing strategic plan
3. Implementation of strategy
 Putting strategies into practice
 Developing structures and systems
 Managing behavioural and functional implementation
4. Strategic Evaluation and Control
 Performing evaluation
 Exercising control
 Recreating strategies
Strategic Management is all about specifying organization‘s vision, mission and objectives,
environment scanning, crafting strategies, evaluation and control.
Importance of Strategic Management
 It guides the company to move in a specific direction. It defines organization‘s goals and fixes
realistic objectives, which are in alignment with the company‘s vision.
 It assists the firm in becoming proactive, rather than reactive, to make it analyse the actions of
the competitors and take necessary steps to compete in the market, instead of becoming
spectators.
 It acts as a foundation for all key decisions of the firm.
 It attempts to prepare the organization for future challenges and play the role of pioneer in
exploring opportunities and also helps in identifying ways to reach those opportunities.
 It ensures the long-term survival of the firm while coping with competition and surviving the
dynamic environment.
 It assists in the development of core competencies and competitive advantage that helps in the
business survival and growth.
The basic purpose of strategic management is to gain sustained-strategic competitiveness of the
firm. It is possible by developing and implementing such strategies that create value for the
company. It focuses on assessing the opportunities and threats, keeping in mind firm‘s strengths
and weaknesses and developing strategies for its survival, growth and expansion.
CORPORATE STRATEGY
What is Corporate Strategy?
Corporate Strategy takes a portfolio approach to strategic decision making by looking across all
of a firm‘s businesses to determine how to create the most value. In order to develop a corporate
strategy, firms must look at how the various business they own fit together, how they impact
each other, and how the parent company is structured in order to optimize human capital,
processes, and governance. Corporate Strategy builds on top of business strategy, which is
concerned with the strategic decision making for an individual business.
What are the Components of Corporate Strategy?
There are several important components of corporate strategy that leaders of organizations focus
on. The main tasks of corporate strategy are:
1. Allocation of resources
2. Organizational design
3. Portfolio management
4. Strategic tradeoffs
In the following sections, this guide will break down the four main components outlined above.
#1 Allocation of Resources
The allocation of resources at a firm focuses mostly on two resources: people and capital. In an
effort to maximize the value of the entire firm, leaders must determine how to allocate these
resources to the various businesses or business units to make the whole greater than the sum of
the parts.
Key factors related to the allocation of resources are:
 People
o Identifying core competencies and ensuring they are well distributed across the
firm
o Moving leaders to the places they are needed most and add the most value
(changes over time based on priorities)
o Ensuring an appropriate supply of talent is available to all businesses
 Capital
o Allocating capital across businesses so it earns the highest risk-adjusted return
o Analyzing external opportunities (mergers and acquisitions) and allocating capital
between internal (projects) and external opportunities
#2 Organizational Design
Organizational design involves ensuring the firm has the necessary corporate structure and
related systems in place to create the maximum amount of value. Factors that leaders must
consider are, the role of the corporate head office (centralized vs decentralized approach and the
reporting structure of individuals and business units (vertical hierarchy, matrix reporting, etc.).
Key factors related to the allocation of resources are:
 Head office (centralized vs decentralized)
o Determining how much autonomy to give business units
o Deciding whether decisions are made top-down or bottom-up
o Influence on the strategy of business units
 Organizational structure (reporting)
o Determine how large initiatives and commitments will be divided into smaller
projects
o Integrating business units and business functions such that there are no
redundancies
o Allowing for the balance between risk and return to exist by separating
responsibilities
o Developing centers of excellence
o Determining the appropriate delegation of authority
o Setting governance structures
o Setting reporting structures (military / top-down, matrix reporting
#3 Portfolio Management
Portfolio management looks at the way business units complement each other, their correlations,
and decides where the firm will ―play‖ (i.e. what businesses it will or won‘t enter).
Corporate Strategy related to portfolio management includes:
 Deciding what business to be in or to be out of
 Determining the extent of vertical integration the firm should have
 Managing risk through diversification and reducing the correlation of results across
businesses
 Creating strategic options by seeding new opportunities that could be heavily invested in
if appropriate
 Monitor the competitive landscape and ensure the portfolio is well balanced relative to
trends in the market
#4 Strategic Tradeoffs
One of the most challenging aspects of corporate strategy is balancing the tradeoffs between risk
and return across the firm. It‘s important to have a holistic view of all the businesses combined
and ensure that the desired levels are risk management and return generation are being pursued.
Below are the main factors to consider for strategic tradeoffs:
 Managing risk
o Firm-wide risk is largely depending on the strategies it chooses to pursue
o True product differentiation, for example, is a very high-risk strategy that could
result in a market leadership position, or total ruin
o Many companies adopt a copycat strategy by looking at what other risk-takers
have done and modify it slightly
o It‘s important to be fully aware of strategies and associated risks across the firm
o Some areas might require true differentiation (or cost leadership) but other areas
might be better suited to copycat strategies that rely on incremental improvements
o The degree of autonomy business units have is important in managing this risk
 Generating returns
o Higher risk strategies create the possibility of higher rates of return. The examples
above of true product differentiation or cost leadership could provide the most
return in the long run if they are well executed
o Swinging for the fences will lead to more home runs and more strikeouts so it‘s
important to have the appropriate number of options in the portfolio. These
options can later turn into big bets as the strategy develops
 Incentives
o Incentive structures will play a big role in how much risk and how much return
managers seek
o It may be necessary to separate the responsibilities of risk management and return
generation so that each can be pursued to the desired level
o It may further help to manage multiple overlapping timelines, ranging from short-
term risk/return to long-term risk/return and ensuring there is appropriate
dispersion
MEANING OF PRODUCTION STRATEGIES
Production strategies are broad long-term action plans. They are made for achieving the
main objectives of organisation. Production strategies tell us what the production department
must do to achieve the top aims of the organisation. It provides a road map for the production
department.
So, production strategies are long-term action plans of the organisation, for the
production of goods and services.
Production strategies decide about the investment to be made for production, the technology to
be used for production, the training to be given to the production staff, the production schedule to
be followed, etc. It also decides about the goods and services to be produced and when to
introduce them in the market.
It is the top level of management that first fixes the main objectives of the organisation.
Then top-level managers make strategies for achieving these objectives.
Generally, there are two types of strategies, viz.,
1. Business Strategies are strategies made for the entire organisation. It covers all departments of
the organisation. These are made by the top-level management.
2. Functional or Departmental Strategies are strategies made for a particular department. Each
department has its own strategy such as production and marketing strategy. These strategies
support the business strategy to achieve the main objectives of the organisation. They are made
by middle-level management, i.e. by Departmental Heads. So, production strategy is a
functional strategy.
DIFFERENT TYPES OF PRODUCTION STRATEGIES

The different types of production strategies are grouped, listed and explained under
following three categories, viz.,
The types of production strategies under Business Strategies are as follows:

1. Differentiation strategy
2. Cost leadership strategy
3. Market segmentation strategy
The production strategies under Competitive Priorities are as follows:
1. Price or cost strategy
2. Quality strategy
3. Delivery strategy
4. Product mix or flexibility strategy
5. Service strategy
6. Eco-friendly products
The production strategies under Competitive Advantages are as follows
1. Flexible response strategy
2. Low cost strategy
The types of production strategies listed above are discussed as follows:
1. Differentiation strategy
Under a differentiation strategy, the company tries to be different and unique from its
competitors. It may offer better quality, quantity, pricing, appearance, and after sales-service,
when compared to its competitors. It may offer more features and facilities in its product. It may
be more flexible while dealing with its customers. It may also offer quick and better delivery of
its products. So, there are many ways, in which a company can remain different from its
competitors. If it maintains this uniqueness and difference in its product quality and customer
service, then it can charge higher prices.
2. Cost leadership strategy

Under a cost leadership strategy, the company tries to reduce its cost of production. This is done
by producing goods on a very huge scale. By doing so, the company will get the benefits of
economies of large scale. Higher the scale of production, lower will be the cost of production.
This is because per unit cost of raw materials, labour, advertising, sales promotion, R & D, etc.
will decrease.
3. Market segmentation strategy

In market segmentation strategy, the company divides the market according to the type of
customers it has to focus and target. It sells different products and services to different types of
customers. To achieve this goal, it produces and sells goods and services as per the needs of the
customers. Therefore, market segmentation strategy is also called Focus Strategy.
4. Price or cost strategy

Under price or cost strategy, the company sells its product at a very low price. This strategy is
used when the products are homogeneous (same) in nature. That is, when the customers cannot
distinguish the company's product from the competitors' products. In this case, the company will
fix a low price. So, the customers will purchase the company's product and not the competitors'
products.
5. Quality strategy
Under quality strategy, the company produces and sells high-quality goods and services. The
prices of such goods and services are naturally very high. However, this strategy attracts those
customers who prefer top quality products and are ready to pay necessary appropriate prices. The
company must pay special attention to the design of its products. It must upgrade product design
and add new product features to satisfy the current needs and demands of its customers. Products
which are designed badly will naturally fail in the market. To gain success in the market, the
company must smartly invest to make quality innovative products that are free from any defects.
6. Delivery strategy
Here under delivery strategy, the company delivers its product and services to their customers as
early as possible that too within a fixed time period. The company gives top priority to fast
delivery of products and providing quickest accessibility of services. Speed delivery of products
and fastest accessibility of services removes the problem of scarcity and unnecessary delays in
the market. Delivery strategy is used as a selling tactic to fight cut-throat competition.
7. Product mix or flexibility strategy

Under this strategy, the company produces and sells a product mix. A product mix is a group of
products, which are sold by the same company. Here, the company does not depend only on one
product for its survival and growth. It uses a product mix because it offers many advantages to
the company. However, only large companies with huge production capacity can use this
strategy.
8. Service strategy
Under this strategy, the company uses a service to attract the customers. It gives quicker and
better after-sales service. It gives around the clock, i.e. 24-hour customer service. It may render
this service directly via the company or through the network of call centres. Service is required
for both consumer goods as well as industrial goods.
9. Eco-friendly products
Under eco-friendly strategy, the company produces and sells environment-friendly products also
called as Green Products. For e.g. producing and selling lead-free petrol to reduce pollution,
manufacturing mercury-free television panels, etc., are some good steps to preserve nature. This
is a new type of production strategy. It is used to reduce pollution and protect the biosphere.
Companies may also recycle certain materials like plastic, metals and papers. The properly
recycled products are later used for manufacturing new products and in packaging. Companies
use biodegradable packing material to reduce the problem of waste disposal. Recycling reduces
continuous demand cycle of natural resources and hence somewhat minimize the exploitation of
environment. The company informs the public about their environment-friendly manufacturing
approach through advertisements.
10. Flexible response strategy

Flexible response strategy is said to be used when a company makes necessary changes in its
production plans that too in accordance with the emerging changes in the market. Here,
importance is given to speed and reliability. That is, the company must make quick changes as
per the arising changes in the market demand. It must also be reliable. That is, it must give a
regular supply of goods to its customers. There must not be any shortage of goods in the market.
To achieve this, the company must follow a strict production schedule.
11. Low cost strategy

Under low cost strategy, the company fights massive market competition by selling its products
at very lower prices. Simultaneously, it must also maintain the quality of its products. A
company can only sell its goods at minimum prices if it maintains a low cost of production and
distribution. This can be done by producing and distributing goods on a large scale. That is,
company must take advantage of economies of large-scale production.
WORLD CLASS MANUFACTURING
Introduction
Manufacturing has evolved considerably since the advent of industrial revolution. In current
global and competitive age, it is very important for organization to have manufacturing practice
which is lean, efficient, cost-effective and flexible.
World class manufacturing is a collection of concepts, which set standard for production
and manufacturing for another organization to follow. Japanese manufacturing is credited
with pioneer in concept of world-class manufacturing. World class manufacturing was
introduced in the automobile, electronic and steel industry.
World class manufacturing is a process driven approach where various techniques and
philosophy are used in one combination or other.
Some of the techniques are as follows:

 Make to order
 Streamlined Flow
 Smaller lot sizes
 Collection of parts
 Doing it right first time
 Cellular or group manufacturing
 Total preventive maintenance
 Quick replacement
 Zero Defects
 Just in Time
 Increased consistency
 Higher employee involvement
 Cross Functional Teams
 Multi-Skilled employees
 Visual Signaling
 Statistical process control
Idea of using above techniques is to focus on operational efficiency, reducing wastage and
creating cost efficient organization. This leads to creation of high-productivity organization,
which used concurrent production techniques rather than sequential production method.
World Class Manufacturers
World class manufacturers tend to implement best practices and also invent new practices
as to stay above the rest in the manufacturing sector. The main parameters which determine
world-class manufacturers are quality, cost effective, flexibility and innovation.
World class manufacturers implement robust control techniques but there are five steps, which
will make the system efficient. These five steps are as follows:
 Reduction of set up time and in tuning of machinery: It is important that organizations
are able to cut back time in setting up machinery and also tune machinery before
production.
 Cellular Manufacturing: It is important that production processes are divided into
according to its nature, with similar nature combined together.
 Reduce WIP material: It is normal tendency of manufacturing organization to maintain
high levels of WIP material. Increased WIP leads to more cost and decreased WIP
induces more focus on production and fast movement of goods.
 Postpone product mutation: For to achieve a higher degree of customization many
changes are made to final product. However, it is important that mutation conceived for
the design stage implement only after final operation.
 Removal the trivial many and focus on vital few: It is important for organization to
focus on production of products which are lined with forecast demand as to match
customer expectation.
Principles of World Class Manufacturing
There are three main principles, which drive world-class manufacturing.
 Implementation of just in time and lean management leads to reduction in wastage
thereby reduction in cost.
 Implementation of total quality management leads to reduction of defects and encourages
zero tolerance towards defects.
 Implementation of total preventive maintenance leads to any stoppage of production
through mechanical failure.
Aspects of World Class Manufacturing
The main aspects of the world-class manufacturing are as follows:
 Industrial culture area
 Market/client area
 Product development area
 Operations area
 E-Performance area
DEMAND FORECASTING: CONCEPT

An organization faces several internal and external risks, such as high competition, failure of
technology, labor unrest, inflation, recession, and change in government laws.
Therefore, most of the business decisions of an organization are made under the conditions of
risk and uncertainty.
An organization can lessen the adverse effects of risks by determining the demand or sales
prospects for its products and services in future. Demand forecasting is a systematic process that
involves anticipating the demand for the product and services of an organization in future under
a set of uncontrollable and competitive forces.
DEFINITIONS OF DEMAND FORECASTING ARE AS FOLLOWS:

According to Evan J. Douglas, ―Demand estimation (forecasting) may be defined as a process
of finding values for demand in future time periods.‖
In the words of Cundiff and Still, ―Demand forecasting is an estimate of sales during a
specified future period based on proposed marketing plan and a set of particular
uncontrollable and competitive forces.‖
Demand forecasting enables an organization to take various business decisions, such as planning
the production process, purchasing raw materials, managing funds, and deciding the price of the
product. An organization can forecast demand by making own estimates called guess estimate or
taking the help of specialized consultants or market research agencies. Let us discuss the
significance of demand forecasting in the next section.
SIGNIFICANCE OF DEMAND FORECASTING:
Demand plays a crucial role in the management of every business. It helps an organization to
reduce risks involved in business activities and make important business decisions. Apart from
this, demand forecasting provides an insight into the organization‘s capital investment and
expansion decisions.
The significance of demand forecasting is shown in the following points:

i. Fulfilling objectives:
Implies that every business unit starts with certain pre-decided objectives. Demand forecasting
helps in fulfilling these objectives. An organization estimates the current demand for its products
and services in the market and move forward to achieve the set goals.
For example, an organization has set a target of selling 50, 000 units of its products. In such a
case, the organization would perform demand forecasting for its products. If the demand for the
organization‘s products is low, the organization would take corrective actions, so that the set
objective can be achieved.
ii. Preparing the budget:
Plays a crucial role in making budget by estimating costs and expected revenues. For instance, an
organization has forecasted that the demand for its product, which is priced at Rs. 10, would be
10, 00, 00 units. In such a case, the total expected revenue would be 10* 100000 = Rs. 10, 00,
000. In this way, demand forecasting enables organizations to prepare their budget.
iii. Stabilizing employment and production:
Helps an organization to control its production and recruitment activities. Producing according to
the forecasted demand of products helps in avoiding the wastage of the resources of an
organization. This further helps an organization to hire human resource according to
requirement. For example, if an organization expects a rise in the demand for its products, it may
opt for extra labor to fulfill the increased demand.
iv. Expanding organizations:
Implies that demand forecasting helps in deciding about the expansion of the business of the
organization. If the expected demand for products is higher, then the organization may plan to
expand further. On the other hand, if the demand for products is expected to fall, the organization
may cut down the investment in the business.
v. Taking Management Decisions:
Helps in making critical decisions, such as deciding the plant capacity, determining the
requirement of raw material, and ensuring the availability of labor and capital.
vi. Evaluating Performance:
Helps in making corrections. For example, if the demand for an organization‘s products is less, it
may take corrective actions and improve the level of demand by enhancing the quality of its
products or spending more on advertisements.
vii. Helping Government:
Enables the government to coordinate import and export activities and plan international trade.
OBJECTIVES OF DEMAND FORECASTING:

Demand forecasting constitutes an important part in making crucial business decisions.
The objectives of demand forecasting are divided into short and long-term objectives,
which are shown in Figure-1:
The objectives of demand forecasting (as shown in Figure-1) are discussed as follows:
i. Short-term Objectives:
Include the following:
a. Formulating production policy:
Helps in covering the gap between the demand and supply of the product. The demand
forecasting helps in estimating the requirement of raw material in future, so that the regular
supply of raw material can be maintained. It further helps in maximum utilization of resources as
operations are planned according to forecasts. Similarly, human resource requirements are easily
met with the help of demand forecasting.
b. Formulating price policy:
Refers to one of the most important objectives of demand forecasting. An organization sets
prices of its products according to their demand. For example, if an economy enters into
depression or recession phase, the demand for products falls. In such a case, the organization sets
low prices of its products.
c. Controlling sales:
Helps in setting sales targets, which act as a basis for evaluating sales performance. An
organization make demand forecasts for different regions and fix sales targets for each region
accordingly.
d. Arranging finance:
Implies that the financial requirements of the enterprise are estimated with the help of demand
forecasting. This helps in ensuring proper liquidity within the organization.
ii. Long-term Objectives:
Include the following:
a. Deciding the production capacity:
Implies that with the help of demand forecasting, an organization can determine the size of the
plant required for production. The size of the plant should conform to the sales requirement of
the organization.
b. Planning long-term activities:
Implies that demand forecasting helps in planning for long term. For example, if the forecasted
demand for the organization‘s products is high, then it may plan to invest in various expansion
and development projects in the long term.
FACTORS INFLUENCING DEMAND FORECASTING:
Demand forecasting is a proactive process that helps in determining what products are needed
where, when, and in what quantities. There are a number of factors that affect demand
forecasting.
Some of the factors that influence demand forecasting are shown in Figure-2:
The various factors that influence demand forecasting (“as shown in Figure-2) are
explained as follows:
i. Types of Goods:
Affect the demand forecasting process to a larger extent. Goods can be producer‘s goods,
consumer goods, or services. Apart from this, goods can be established and new goods.
Established goods are those goods which already exist in the market, whereas new goods are
those which are yet to be introduced in the market.
Information regarding the demand, substitutes and level of competition of goods is known only
in case of established goods. On the other hand, it is difficult to forecast demand for the new
goods. Therefore, forecasting is different for different types of goods.
ii. Competition Level:
Influence the process of demand forecasting. In a highly competitive market, demand for
products also depends on the number of competitors existing in the market. Moreover, in a
highly competitive market, there is always a risk of new entrants. In such a case, demand
forecasting becomes difficult and challenging.
iii. Price of Goods:
Acts as a major factor that influences the demand forecasting process. The demand forecasts of
organizations are highly affected by change in their pricing policies. In such a scenario, it is
difficult to estimate the exact demand of products.
iv. Level of Technology:
Constitutes an important factor in obtaining reliable demand forecasts. If there is a rapid change
in technology, the existing technology or products may become obsolete. For example, there is a
high decline in the demand of floppy disks with the introduction of compact disks (CDs) and pen
drives for saving data in computer. In such a case, it is difficult to forecast demand for existing
products in future.
v. Economic Viewpoint:
Play a crucial role in obtaining demand forecasts. For example, if there is a positive development
in an economy, such as globalization and high level of investment, the demand forecasts of
organizations would also be positive.
Apart from aforementioned factors, following are some of the other important factors that
influence demand forecasting:
a. Time Period of Forecasts:
Act as a crucial factor that affect demand forecasting. The accuracy of demand forecasting
depends on its time period.
Forecasts can be of three types, which are explained as follows:
1. Short Period Forecasts:
Refer to the forecasts that are generally for one year and based upon the judgment of the
experienced staff. Short period forecasts are important for deciding the production policy, price
policy, credit policy, and distribution policy of the organization.
2. Long Period Forecasts:
Refer to the forecasts that are for a period of 5-10 years and based on scientific analysis and
statistical methods. The forecasts help in deciding about the introduction of a new product,
expansion of the business, or requirement of extra funds.
3. Very Long Period Forecasts:
Refer to the forecasts that are for a period of more than 10 years. These forecasts are carried to
determine the growth of population, development of the economy, political situation in a
country, and changes in international trade in future.
Among the aforementioned forecasts, short period forecast deals with deviation in long period
forecast. Therefore, short period forecasts are more accurate than long period forecasts.
4. Level of Forecasts:
Influences demand forecasting to a larger extent. A demand forecast can be carried at three
levels, namely, macro level, industry level, and firm level. At macro level, forecasts are
undertaken for general economic conditions, such as industrial production and allocation of
national income. At the industry level, forecasts are prepared by trade associations and based on
the statistical data.
Moreover, at the industry level, forecasts deal with products whose sales are dependent on the
specific policy of a particular industry. On the other hand, at the firm level, forecasts are done to
estimate the demand of those products whose sales depends on the specific policy of a particular
firm. A firm considers various factors, such as changes in income, consumer‘s tastes and
preferences, technology, and competitive strategies, while forecasting demand for its products.
5. Nature of Forecasts:
Constitutes an important factor that affects demand forecasting. A forecast can be specific or
general. A general forecast provides a global picture of business environment, while a specific
forecast provides an insight into the business environment in which an organization operates.
Generally, organizations opt for both the forecasts together because over-generalization restricts
accurate estimation of demand and too specific information provides an inadequate basis for
planning and execution.
STEPS OF DEMAND FORECASTING:

The Demand forecasting process of an organization can be effective only when it is conducted
systematically and scientifically.
It involves a number of steps, which are shown in Figure-3:
The steps involved in demand forecasting (as shown in Figure-3) are explained as follows:
1. Setting the Objective:
Refers to first and foremost step of the demand forecasting process. An organization needs to
clearly state the purpose of demand forecasting before initiating it.
Setting objective of demand forecasting involves the following:
a. Deciding the time period of forecasting whether an organization should opt for short-term
forecasting or long-term forecasting
b. Deciding whether to forecast the overall demand for a product in the market or only- for the
organizations own products
c. Deciding whether to forecast the demand for the whole market or for the segment of the
market
d. Deciding whether to forecast the market share of the organization
2. Determining Time Period:
Involves deciding the time perspective for demand forecasting. Demand can be forecasted for a
long period or short period. In the short run, determinants of demand may not change
significantly or may remain constant, whereas in the long run, there is a significant change in the
determinants of demand. Therefore, an organization determines the time period on the basis of its
set objectives.
3. Selecting a Method for Demand Forecasting:
Constitutes one of the most important steps of the demand forecasting process Demand can be
forecasted by using various methods. The method of demand forecasting differs from
organization to organization depending on the purpose of forecasting, time frame, and data
requirement and its availability. Selecting the suitable method is necessary for saving time and
cost and ensuring the reliability of the data.
4. Collecting Data:
Requires gathering primary or secondary data. Primary‘ data refers to the data that is collected by
researchers through observation, interviews, and questionnaires for a particular research. On the
other hand, secondary data refers to the data that is collected in the past; but can be utilized in the
present scenario/research work.
5. Estimating Results:
Involves making an estimate of the forecasted demand for predetermined years. The results
should be easily interpreted and presented in a usable form. The results should be easy to
understand by the readers or management of the organization.
Unit – II
Product Design – New product development, process planning and design, value analysis,
capacity planning
DEFINITION OF PRODUCT DESIGN

Design of a product means determining the shape, standard and pattern of broadest sense
includes the whole development of a product through all preliminary stage until actual
manufacturing begins". This definition of design cannot be said to be satisfactory because it does
not clarify the aspect of design completely. The Indian Patents and Design Act explains the
design as "the feature or shape, configuration, pattern or ornament applied to any article by any
industrial process whether manual, mechanical or chemical, which in the finished article appeal
to and are judged soley by the eye, but does not include any mode or principle of constructing or
anything which is a mere mechanical device and does not include any trademark".
The term designing the product refers to the determination of shape, standard and pattern of the
product. It includes (i) specification, (ii) experimental and development work for the production
of desired product, (iii) calculation of estimates and drafting estimates of contracts for new
inquiries, and (iv) issuing necessary instructions to the production department for production.
Generally, a separate technical department is established in big industries that are assigned the
responsibility of designing the product. The technical department must clearly specify what is to
be produced by the production department not only because it has been entrusted with the task of
designing the product, but also for gaining and retaining the goodwill of other manufacturers and
consumers who will use the product. It is advisable that the cooperation of other concerning
departments should be sought in designing the product. Production and sales departments are two
main departments concerned. Thus, designing of a product must be integrated with production
and sales functions.
Characteristics of a Good Product Design
A good product design should posses the following characteristics:
i. Function: A product can be sold if it meets the needs of the consumer d as such the product
must be designed to meet such needs. For example, L customer expects a gas lighter to be
convenient (i.e., to instantly light the gas stove), If the gas lighter cannot achieve that, then the
purpose is lost as the basic function is not met.
ii) Reliability: It is the probability that there will not be any major failure of the product during
its use. For example, if certain components of a product are put into use very often, the reliability
of each component should be staggeringly high which may not be practical from production
point of view. To overcome this problem, duplicate components can be operated in parallel i.e.,
if one component fails its duplicate may be put into operation.
(iii) Maintainability: The lubrication points and other areas for servicing of the product to be
designed ought to be easily accessible even though the physical form may have to be altered a
bit. The alternative is to make a trouble free product with expensive design. The trade-off
between being trouble-free and maintainability is an important decision at the design stage and it
mainly depends on the nature of the product. The after sales feedback from customers is quite
valuable in improving upon the maintainability of a product.
(iv) Producibility: A product should be designed in such a manner that it can be produced easily
at a reasonable cost. Least number of operations is required to produce a product quickly and
cheaply. This may be possible with change in technology. For example, instead of machining an
intricate part such as gear, it can be moulded, without affecting its function.
Producibility can also be enhanced by reducing work content of the job involved. For example,
the instrument penal of a car used to be maize of wires. This has been redesigned with a printed
circuit board where only multiple pin plugs needs to be connected into it. This has resulted into
reduced work content and greater product reliability.
(v) Simplification: Simplification and producibility go hand in hand. The simpler the design of
the product, the easier it is to produce, the lesser it costs and more reliable it is.
(vi) Product standardisation and variety reduction: Variety to a large extent depends on
market forces. The larger the market, the greater is the degree of standardisation possible which
makes economies of scale possible. If there is a competitive market, products can have a selling
edge if variety is offered. This will involve a design for the product in such a way which will
lend itself to modularisation so as to gain advantage of large production.
(vii) Quality: A good quality product design ensures that the quality of a final product is
obtained through its individual components. The tolerance specified at every stage ensures a end
product with the desired quality.
(viii) Minimum cost: Design influences manufacturing cost. A good product must ensure
minimum manufacturing. Some of the areas is which savings he effected at the design stage have
been discussed already.
(ix) Warranties: Whether or not a manufacturer is legally bound to put right whatever wrong
the customer does is the question here. The point is customer is too valuable to be lost, especially
if the manufacturer wishes retain him and established his goodwill, Breakdown of a component
may or may not owe their origin to poor maintenance or misuse of the component by a customer-
it may be due to faulty material, faulty designs and faulty processing. The manufacturer must
keep in mind the importance of a customer and the costs to he incurred in fixing up a product for
the customer.
(X) Modular design: The products should consist of detachable components or sub-assemblies
so that whenever a component fails, it can be replaced by a new one easily, The use of standard
sub-assemblies gives rise to numerous end-products in different combinations, The concept is
known as modularity. The need of a modular design is enforced by the customer who wants a
variety to choose from what he she likes the best. Maintaining stocks of modules and assembling
them promptly enable the manufacturer to offer variety in customer's hands. Thus, the
advantages of modular diversity can be listed as:
 Diversity can be offered to the customers
 Inventories can be substantially reduced.
 Cannibalisation L.e., using parts of one equipment salvaged for use in another application
is made easy.
 Repairing a product becomes in expensive because only a few standard tools are needed,
 The company can contract or expand its capacity. An example of modular design is a
gasoline pump that permits the customer to mix his own blend.
TYPES OF DESIGN
Product design may be of four types:
(a) Functional design. (b) Aesthetic design, (c) production design and (d) packing design.
(a) Functional Design: Functional design involves developing an idea into a rough model of the
proposed products. This first necessity making a rough sketch of the proposed products to give
some idea of the shape of its parts necessary to accomplish its purpose. Then, the designer makes
draft-room sketches of the proposed products. After this, experimental models are prepared
which are thoroughly tested to make sure that they function properly for a certain period of time
and under varying conditions. If, for example, a company designing a lawn-mower, the designer
must make sure that the functional design is such that the model is able to cut grass properly,
evenly and cleanly. It is also important that it is pushed easily. After all these, a life-test should
also be conducted to see how long it will function and remain in good condition. It can he
conducted within the company itself or the product may be given to a few selected customers for
a trial cum actual use.
(b) Aesthetic Design: Before production on a commercial scale is undertaken another type of
design must be integrated with the functional design and it is aesthetic design (style) for market
acceptability. The emphasis on style has become more evident during recent years. It is not
sufficient if the functional design of the proposed product is good and economical, it should also
be appealing to the customers in its appearance inducing them to buy.
(c) Production Design or Product Design: Generally, the functional design is translated into
production design to make it easy for manufacturing. Product design pertains to a design which
may result in affecting its economics without affecting its functional efficiency. As soon as the
product has been fully tested to determine whether it is functioning properly, it must be checked
to see whether any design changes can be made which will affect economics when the item is
produced but will not affect its functional efficiency.
(d) Packing Design: Packing design should also be appealing to the consumers depending upon
the size and nature of the product. Different packing materials can be used to suit the consumers'
tastes and to maintain the chemical properties of the product.
The product designer should use standard parts or assemblies as far as possible to reduce the cost
of production because standard parts in some cases may be purchased cheaper from outside firms
specialising such manufacture. The product designer should be aware of possibility of
simplification and diversification of the product. To sum up, design excellence should achieve
functional perfection, low cost of production and win over consumers' appeal.
OBJECTIVES OF DESIGNING A PRODUCT
The object of designing a product may be summarised as follows:
(i) The first object is to create attention for the product for increasing sale-potentials.
(ii) To enhance the importance of product from customers' point of view.
(iii) To produce better quality at the lowest possible price.
FACTORS AFFECTING THE DESIGN OF A PRODUCT
The designer or the technical department must consider the following factors in designing a
product which influence the design of the product:
(i) Customers' requirement and Psychological effects: The designer must, first of all, ascertain
the basic requirements and the psychology of the customers He/she must then evaluate the extent
to which wishes of the customers are fulfilled in the product. For this purpose, he/she must
prepare a comprehensive questionnaire keeping in mind the marketing and economic aspects to
analyse the psychology and needs of the customers and the product may be designed
accordingly.
(ii) Facility to Operator: The second factor which the designer must consider carefully is the
facilities available to the operator on the shop floor. The designer must ensure that the operator is
provided with all the comforts necessary while at work, unnecessary movements may irritate and
tire the operator soon.
(iii) Functionality: The design should not merely be stylish but should cover the utility aspect
also. There must be a proper balance between beauty and utility.
(iv) Materials: The next factor to be considered by the designer is the materials to be used on the
proposed product and the development of improvements in this field as materials have profound
influence over the product. Referring to industrial, scientific and technical journals and being
aware of the tastes and preferences of the consumers will provide necessary information in
taking appropriate decisions in this regard.
(v) Work Method and Equipment: Another important factor affecting the product design is the
work method and the equipment to be used in the manufacture of proposed product. A designer
must be aware of the latest developments in work methods and equipment. Possibility of
modification in the existing work methods and techniques must be evaluated because,
modification in work methods can affect the cost of production to a great extent.
(vi) Cost/price Ratio: Cost is one of the major factors which influence the design of a product.
In a competitive market, usually the designer is given a unit cost figure for each product within
which he/she must work. This gives the designer little freedom for every design. However,
contract-based 'cost plus a margin of profit' arrangement allows a designer the latitude for over
designing particularly if the margin is expressed as a percentage of total cost.
(vii) Quality Policy: Quality of design ultimately reflects on a product quality. The quality of a
design must be fixed at the corporate level to provide the designer with suitable guidelines. Such
a policy will set the design trend for future and build a distinct quality ‗image‘ of the company‘s
product.
(Viii) Process Capability: Product design is governed by quality policy of the firm on one side
and availability of the plant and machinery to meet specifications on the other side. There is no
sense in designing a product which cannot be manufactured by the machines available with the
company. Machines would also be capable of meeting the needs of the designer with regard to
the design quality. The process capability of the machines should be such that they meet the
company's quality standards. It is the responsibility of the production department to keep their
plant in top condition. It is also their responsibility to replace worn out machines and justify such
expenditure to the top management. However, the designer must be aware of the capacity of the
machines available in the organisation and design the products to satisfy their process capability.
(ix) Effect on Other Products: The designer should also consider the effect of the raw products
on the existing ones. If the new product is to replace an existing one, it should (i) fit into the
manufacturing and distribution plans of the original product, (ii) use the same standard parts and
components, and (iii) accept the same manufacturing technology, On the other hand, if the new
product requires different distribution arrangements and use of a different technology, the effect
on the sale of other products must be considered.
(x) Packaging: Good packaging is as important as good design of the product. Packaging is
required for (i) protection of the product when in shelf or in transit and (ii) promotion
(advertising) of the product. Consumer products generally require attractive packaging to
enhance sales appeal while industrial goods require sturdy packaging to avoid damage during
transit. Packaging, particularly in a consumer product is a design activity.
MAKKETING PRODUCT CHARACTERISTICS
ASPECTS Functional, operational quality and
reliability, aesthetic considerations
PRODUCT DESIGN
ECONOMIC CONSIDERATIONS PRODUCTION ASPECTS
STAGES IN PRODUCT DESIGN

Every product design passes through the following six stages:
(i) Conception
(ii) Acceptance
(iii) Execution
(iv) Evaluation
(v) Translation and
(vi) Pre-production
(i) Conception: Conception stage is the first and the most important stage in any product design.
A draft specification is prepared at this stage by the marketing department in consultation with
the design department. Such specification provides an opportunity to:
(a) Designers to understand exactly the wants of the customers.
(b) Marketing personnel to understand the feasibility and the cost of the proposed product and if
required, to discuss the relevant aspects of the product with the potential customers.
Basic information to be provided on design specifications are:
• Performance requirements
• Esteem requirements
• Safety requirements
• Reliability and maintainability requirements.
•. Price limitations, if any, (i. e., maximum price to the customer)
• Delivery requirements (i.e., date by which the production should commence,
• Estimated quantity of the product.
• Maximum acceptable cost of designing.
(ii) Acceptance: Draft specification prepared earlier is scrutinised for its viability by subjecting
it to all possible calculations model making, preliminary drawings, laboratory scale processes,
etc. Based on outcome of these tests the specifications are:
Accepted and taken up for the next stage or rejected as impracticable or modified in consultation
with the marketing department. Acceptance stage in simple projects may coincide with the
previous stage and decision regarding the acceptance/rejection/modification of the specification
may be taken in the meeting between the design and the marketing departments. However, in
case of complex projects, this function is carried out in the design department as a 'back-room'
function by designers and draftsmen. For such design projects work orders are raised to account
for and assign design costs to the projects.
(iii) Execution: Execution concerns conversion of the selected proposal into physical
embodiment. It involves conversion of specifications of materials, functional performance,
reliability and appearance, etc., into blue prints, drawings and diagrams so as to facilitate making
of a prototype. The first physical embodiment of the new product is the model prototype. The
prototype must serve the following factors:
(a) Manufacturing feasibility,
(b) Aesthetic or style requirements,
(c) Specific processes or equipment required to produce the product,
(d) Reliability
(e) Maintainability
(f) Packaging requirements
(g) Transportability,
(h) Feasibility of using standard parts,
(i) Identification of assembly problems,
(i) Refinements (if any).
Execution phase is a time consuming space. Any haste in getting a product into production can
cost the organisation dearly. More than one prototype may be prepared. Critical analysis of the
prototype may bring out limitations/deficiencies and therefore the need for another prototype.
Since, prototypes are prepared (or pilot plans are made) based on ideas, specifications and other
details drawn under acceptance stage and on general design considerations both theoretical and
practical, the prototype models are expected to conform as closely to specifications as possible.
Deviations, if any, are recorded their causes are identified and their effects are considered.
Though technical and appearance aspects are the major considerations at this stage, the cost of
the final product is not ignored (though it is considered as a major factor at the next stage). At the
execution stage, thus, the sole aim is to establish clearly the feasibility of the proposed design in
meeting the specifications.
(iv) Evaluation and Review of the Design: This exercise should be done by persons from
finance, manufacturing, marketing and service departments to achieve optimal design (i.e., the
overall best combinations of product qualities at the lowest per unit production cost). A system
concept is usually helpful which should be directed towards the following:
1. Are functional requirements for which the product is designed met?
2. Are the aesthetic requirement met?
3. Have basic materials and process alternatives and their costs thereof been identified?
4. Does the design allow for economical assembly?
5. Does the design allow for ready inspection and repair?
6. Does the design require special quality and production control?
7. Are any manufacturing bottlenecks foreseen?
8. What lead time is required for employee training and new process installation and run-in?
Once when these questions have been answered adequately, the firm may proceed to the next
stage (translation stage) or return to innovation prototype stage to correct deficiencies (execution
stage).
(v) Translation stage: Translation stage concerns with conversion of design into a form that is
convenient for the production department to manufacture the product in a routine manner. At this
stage, (1) production and service departments are involved in the design work, manufacturing
problems are discussed and design reviews are made to resolve manufacturing difficulties if any.
(ii) blue prints, drawings, diagrams, material lists are prepared to summarise all design and
development work. Dimensions, tolerance and materials are described in detail. A set of
engineering drawings furnishing all details is produced by the engineering department. In
addition, diagrams, sketches, or schematics may also be prepared to aid in manufacturing the
parts or assembling them into components or products. (iii) detailed estimates of costs are
prepared for each component, also components whose costs seem to be excessive are subjected
to design reviews.
(vi) Pre-production: On conclusion of the above five stages, a pilot production run is carried
out. The quantity produced can be adequate to check design, specifications, production
techniques and tools. Pre-production stage brings out in open hidden deficiencies of design and
specifications from manufacturing point of view and thereby provides an opportunity to redesign
the components. The pilot run provides a quantity of the product for studying further the market
acceptance.
Generally, a pilot run would employ a scaled down or modified equipment But it is desirable to
use the specific type of equipment, processes and procedures that will be used for full scale
operations. Subcontracting may be resorted to demonstrate the feasibility of the design and
manufacturing process. The set-up for the pilot run should be as close as possible to the final
production facilities. On successful completion of the pilot run, the drawings are finalized and
the design is frozen.
NEW PRODUCT DEVELOPMENT:

A new product is a one that is perceived new by a majority of people in the given market. It is
something which is new to the market, which may be due to product innovation or product
modification. Newness may be slight change in packaging, new product lines, duplicate of
competitor‘s product, launching the product in different market and such other changes.
New products pull the attention of the customers. It helps in reaping higher profit margins and
boosts the declining product. Launch of a new product marks the growth and expansion of the
company.
Every new product goes through a product planning process comprising of following
stages:
1. Idea Generation:
The new product development starts with the search and generation of ideas which may arise
from various sources like company‘s R&D department, market and consumers trends,
competitors, focus groups, employees, sales people and such other.
2. Idea Screening:
At this stage, the generated ideas are screened down on the basis of their feasibility and viability,
only practical and workable ideas are developed. The purpose of screening is to have a critical
evaluation of product ideas and drop the poor ideas.
3. Concept Development and Testing:
The company may have considered the idea to be feasible, but is has to be tested with the target
audience. Here the product idea is converted into meaningful consumer item and presented to
appropriate target consumers to know their reactions. If the reaction is positive, the company
moves to next stage.
4. Market Strategy Development:
After successful concept testing, the marketing manager will develop a preliminary marketing
strategy for introducing the product in the market. The marketing strategy will highlight the
segmentation, targeting and positioning strategy.
5. Business Analysis:
Business analysis is the study of economic feasibility of the new product i.e. whether the product
will be financially worthwhile in long run or not. This stage estimates the expected future
profitability of the new product, i.e. what cash flow product can generate, what will be the cost
of production, what will be the expected life of the product, share of market product may get etc.
6. Product Development:
Once the product is declared economically feasible, the company gives the product its physical
shape. This stage involves huge investments to be made, as compared to the pervious stages. The
physical product as it would appear is prepared so that it can be tested.
7. Test Marketing:
Test marketing is a stage where the new product is tested with a particular target market, to find
out whether it is acceptable to the consumers or not. The expectation of the consumers from the
product is tested here. Any improvement or modification required can be taken care of. Test
marketing, thus, help in pretesting of the product and the marketing plan, before it is launched in
the market.
8. Commercialization:
Successful test marketing gives way to actual introduction of the product in the market place.
Here the company has to consider certain factors like when to launch the product, where and
how the product will be launched, which market and which consumers to target etc. Market entry
timing is also very important.
PROCESS PLANNING
In companies, planning processes can result in increased output, higher precision, and faster
turnaround for vital business tasks. A process is described as a set of steps that result in a specific
outcome. It converts input into output. Process planning is also called manufacturing planning,
material processing, process engineering, and machine routing. It is the act of preparing detailed
work instructions to produce a part. It is a complete description of specific stages in the
production process. Process planning determines how the product will be produced or service
will be provided. Process planning converts design information into the process steps and
instructions to powerfully and effectively manufacture products. As the design process is
supported by many computer-aided tools, computer-aided process planning (CAPP) has evolved
to make simpler and improve process planning and realize more effectual use of manufacturing
resources.
It has been documented that process planning is required for new product and services. It is the
base for designing factory buildings, facility layout and selecting production equipment. It also
affects the job design and quality control.
Objective of Process Planning: The chief of process planning is to augment and modernize the
business methods of a company. Process planning is planned to renovate design specification
into manufacturing instructions and to make products within the function and quality
specification at the least possible costs. This will result in reduced costs, due to fewer staff
required to complete the same process, higher competence, by eradicating process steps such as
loops and bottlenecks, greater precision, by including checkpoints and success measures to make
sure process steps are completed precisely, better understanding by all employees to fulfil their
department objectives. Process planning deals with the selection of the processes and the
determination of conditions of the processes. The particular operations and conditions have to be
realised in order to change raw material into a specified shape. All the specifications and
conditions of operations are included in the process plan. The process plan is a certificate such as
engineering drawing. Both the engineering drawing and the process plan present the fundamental
document for the manufacturing of products. Process planning influences time to market and
productions cost. Consequently the planning activities have immense importance for competitive
advantage.
Effect of process planning on competitive advantage:
Principles of Process Planning

General principles for evaluating or enhancing processes are as follows:
1. First define the outputs, and then look toward the inputs needed to achieve those outputs.
2. Describe the goals of the process, and assess them frequently to make sure they are still
appropriate. This would include specific measures like quality scores and turnaround
times.
3. When mapped, the process should appear as a logical flow, without loops back to earlier
steps or departments.
4. Any step executed needs to be included in the documentation. If not, it should be
eliminated or documented, depending on whether or not it's necessary to the process.
5. People involved in the process should be consulted, as they often have the most current
information.
Process planning includes the activities and functions to develop a comprehensive plans and
instructions to produce a part. The planning starts with engineering drawings, specifications,
parts or material lists and a forecast of demand. The results of the planning are routings which
specify operations, operation sequences, work centres, standards, tooling and fixtures. This
routing becomes a major input to the manufacturing resource planning system to define
operations for production activity control purposes and define required resources for capacity
requirements planning purposes.
Process plans which characteristically offer more detailed, step-by-step work instructions
including dimensions linked to individual operations, machining parameters, set-up instructions,
and quality assurance checkpoints. Process plans results in fabrication and assembly drawings to
support manufacture and annual process planning is based on a manufacturing engineer's
experience and knowledge of production facilities, equipment, their capabilities, processes, and
tooling. But process planning is very lengthy and the results differ based on the person doing the
planning.
Major steps in process planning: Process planning has numerous steps to complete the project
that include the definition, documentation, review and improvement of steps in business
processes used in a company.
Definition: The first step is to describe what the process should accomplish. It includes queries
like, what is the output of this process? Who receives the output, and how do they define
success?, What are the inputs for the process?, Are there defined success measures in place -
such as turnaround time or quality scores? And Are there specific checkpoints in the process that
need to be addressed?
Documentation: During the documentation stage, interviews are conducted with company
personnel to determine the steps and actions they take as part of a specific business process. The
results of these interviews is written down, generally in the form of a flow chart, with copies of
any forms used or attached. These flow charts are given to the involved departments to review, to
make sure information has been correctly captured in the chart.
Process planning in manufacturing may include the following activities:

1. Selection of raw-stock,
2. Determination of machining methods,
3. Selection of machine tools,
4. Selection of cutting tools,
5. Selection or design of fixtures and jigs,
6. Determination of set-up,
7. Determination of machining sequences,
8. Calculations or determination of cutting conditions,
9. Calculation and planning of tool paths,
10. Processing the process plan
VALUE ANALYSIS
INTRODUCTION:
Value Analysis is one of the major techniques of cost reduction and control. It is a disciplined
approach which ensures the necessary functions for the minimum cost without diminishing
quality, reliability, performance and appearance.
It is a creative approach to eliminate the unnecessary costs which add neither to quality nor to the
appearance of the product. It is a systematic application of techniques to identify the functions of
a product or a component and to provide the desired function at the lowest total cost.
These are the days of providing the customer with really best quality products at least cost which
is possible through value analysis which proves wrong rightly ―Best and Cheap‖ or ―Best is
never cheap‖ or ―Cheap is Costly‖.
WHAT IS VALUE ANALYSIS?

Before understanding the meaning of phrase ―value analysis‖ or ―value engineering‖, let us know
about value. ‗Value‘ is one of those terms having good many connotations and even
contradictory definitions.
‗Value‘ is a word that is very often used by individuals without being clearly understood. Forget
about common people. Even different departments of the same organisation have different
opinions of the ‗value‘ of the product that the company manufactures.
The designer equates value with reliability; purchase people with price paid for them; production
personnel with that of cost from the angle of manufacture; sales people with what customer is
willing to pay.
In the field of value investigation, value refers to economic value, which itself can be sub-
divided into four types as cost value, exchange value, use value and esteem value.
―Cost Value‖ is the measure of sum of all costs incurred in producing the product. The ‗cost
value‘, therefore is the sum of raw-material cost, labour cost, tool cost and overheads expended
to produce the product.
―Exchange Value‖ is the measure of all the properties, qualities and features of the product
which make the product possible of being traded for another product or for money. In a
conventional sense, ‗exchange value‘ refers to the price that a purchaser will offer for the
product, the price being dependent upon the satisfaction value which derives from the product.
Value derived from the product consists of two components namely (a) value due to reliability of
performance of the product and the value which the possession bestows upon the buyer. These
are often referred to as ―value in value‖ and ―esteem in value‖.
―Use Value‖ is the measure of properties, qualities and features which make the product
accomplish a use, work or service. Use value, therefore, is the price paid by the buyer or the cost
incurred by the manufacturer in order to ensure that the product performs its intended function
efficiently.
Use value in the fundamental form of economic value. An item without use value can have
neither exchange value nor esteem value. ―Esteem Value‖ is the measure of properties, features,
attractiveness graphic packaging and the like which increases sales appeal or which attracts
customers and create in them a strong desire to own the product.
―Esteem value‖, therefore, is the price paid by the buyer or the cost incurred by the
manufacturer beyond the use value. It is the perception value.
Value Analysis Proper:

Value analysis is an organised approach to identify unnecessary costs associated with any
product, material, part, component, system or service by analysis of function and efficiently
eliminating them without impairing the quality functional reliability or its capacity to give
service.
According to Society of American Value Engineers (SAVE) ―Value analysis is the systematic
application of recognised techniques which identify the function of a product or services
establish a monetary value for the function and provide the necessary function reliability at that
lowest overall cost.‖
Mr. Lorry D. Miles production engineer working at General Electricals of USA defined it as
―Value analysis is the study of the relationship of design, function and cost of any material or
service with an object of reducing its cost through modification of design or material
specifications, manufacture by more efficient process, changes in sources of supply, elimination
or incorporation into another item.‖
Thus, value analysis is a systematic application of established techniques to identify the
functions of a product or component and to provide the desired functions at the lowest total cost.
It is a creative approach to eliminate unnecessary costs which add neither to quality no to the
appearance of the product.
It is a rational and structured process consisting of:
(a) Functional analysis to define the reason for the existence of a product or its components,
(b) Creatively analysis for generating new and better alternatives and
(c) Measurement for evaluating the value of present and future concepts.
The phrase value analysis can be defined as a technique which examines the facts of a function
and cost of a product in order to determine whether the cost can be reduced or altogether
eliminated, while retaining all the features of performance and quality of a product or both.
Therefore, logically, VA is an organised approach of exposing and eliminating unnecessary
costs. The method has logical foundation in its fundamental approach to cost reduction and profit
improvement and in this objective approach, the VA techniques has to analyse the functional
cost of an item and recommend a change.
Put alternatively, VA is a team approach to think functionally about a component as to ―what it
does‖ rather than ―what it is‖. This approach is the real test of understanding problems under
study.
VALUE ANALYSIS AND VALUE ENGINEERING:

‗VA‘ and ‗VE‘ are closely related terms so much so that many people use them interchangeably.
Though the philosophy understanding the two is the same the identification of unnecessary costs
yet they are different. The difference lies in the time and stage at which the technique is applied.
―Value Analysis‖ is the application of a set of techniques to an existing product with a view to
improve its value. Thus, it is remedial process. ―Value Engineering‖ is the application of
exactly the same set of techniques to a new product at the design stage project concept or
preliminary design when no hardware exists to ensure that bad features not added. Thus, it is a
‗preventive‘ measure. In that sense, ‗VE‘ is fundamental and VA is collateral because
‗prevention is better than cure.‖
VALUE ANALYSIS VERSUS OTHER CONVENTIONAL APPROACHES:

Speaking in terms of ―cost reduction‖ value analysis is an effective tool of cost reduction which
differs from established conventional approaches such as industrial engineering, production
engineering, methods engineering and the like.
The “traditional” or “conventional” approaches differ from this non- conventional or
modern technique of VA as under:
First:
Traditional approaches concern ―post-production‖ stage but V.A. can be the ‗pre-production‘ as
well as ―post production stage‖ technique.
Second:
Traditional approaches are ―methods concerned‖. They accept the drawing of the part ―as is‖
and, therefore, set to improve the part through analysis of manufacturing methods, machines,
materials, tools, jigs and fixtures and the like.
On the other hand, ‗VA‘ does not accept the designed product and its components ―as is‖ but
advocates cost reduction through identification of the function and subsequent redesign of the
product so as to make it perform its functions at the lowest possible cost.
‗VA‘, therefore, challenges the very design specifications, design requirements and the design
itself.
Third:
Traditional methods are mere ―cost centered‖ while VA, in addition to cost improvement,
usually seeks to improve quality, reliability, maintainability, safety, performance and alluring
features.
Fourth:
VA is more potent than traditional cost reduction techniques. Instances can be brought to surface
to demonstrate that VA can remove ten to twenty percent of cost after the traditional methods of
cost reduction have applied.
Award of warning is essential at this stage, lnspite of VA‘s better potential and greater
effectiveness, it is not a substitute nor is it intended to replace effective cost reduction techniques
which have been in use for many years and have proved effective and valuable in their areas of
application. What can be said is that VA can augment or strengthen the process of cost reduction
and quality improvement.
PHASES OF VALUE ANALYSIS:

As an exercise, the phases of value analysis are:
1. Phase of Origination:
In the first phase, a value analysis study team is constituted. The project is selected and clearly
defined. The team examines in detail the product and its components to understand thoroughly
their nature.
2. Phase of Information:
After familiarisation, a functional analysis is carried out to determine the functions and uses of
the product and its components. The cost and importance of each function are identified. A value
index is calculated on the basis of cost benefit ratio for each function. A list is being prepared in
which the items of functions are arranged in decreasing order of value.
3. Phase of Innovation:
This is the creative phase concerned with the generation of new alternatives to replace or
removing the existing ones.
4. Phase of Evaluation:
Each and every alternative is analysed and the most promising alternatives are selected. These
alternatives are further examined for economic and technical feasibility.
The alternatives finally selected must be capable of performances the desired functions
satisfactorily. These must meet the standards of accuracy, reliability, safety, maintenance and
repairs, environmental effects and so on.
5. Phase of Choice:
In this phase, report is prepared. This report contains a summary of the study, conclusions and
specific proposals. The decision makers choose the alternative. The programs and action places
are then developed to implement the chosen alternative.
6. Phase of Implementation:
The chosen alternative is put to the actual use with the help of the programs and action plans so
developed in advance.
7. Phase of Review:
The progress of analysis changes in continuously monitored and followed up in order to provide
assistance, to clarify any misconceptions and to ensure that the desired results are achieved.
MERITS OF VALUE ANALYSIS:

Value analysis is really a very valuable technique of cost reduction and quality
improvement. The specific merits of its are:
1. Improvement in Product Design:
It leads to improvements in the product design so that more useful products are given shape.
Now in case of ball points, we do not have clogging, there is easy and even flow of ink and
rubber pad is surrounding that reduces figures fatigue.
2. High Quality is maintained:
High quality implies higher value. Thus, dry cells were leaking; now they are leak proof; they are
pen size with same power. Latest is that they are rechargeable.
3. Elimination of Wastage:
Value analysis improves the overall efficiency by eliminating the wastages of various types. It
was a problem to correct the mistakes. It was done by pasting a paper. Now, pens are there and
liquid paper is developed which dries fast and can write back.
4. Savings in Costs:
The main aim of value analysis is to cut the unwanted costs by retaining all the features of
performance or even bettering the performance. Good deal of research and development has
taken place. Now milk, oils, purees pulp can be packed in tetra packing presuming the qualities
and the tetra pack is degradable unlike plastic packs.
5. Generation of New Ideas and Products:
In case of took brushes, those in 1930‘s were flat and hard, over 60 to 70 years brushes have
come making brushing teeth easy, cosy and dosy as it glides and massages gums.
6. Encourages Team-Spirit and Morale:
Value analysis is a tool which is not handled by one, but groups or teams and an organisation
itself is a team of personnel having specification. A product is the product of all team efforts.
Therefore, it fosters team spirit and manures employee morale as they are pulling together for
greater success.
7. Neglected Areas are brought under Focus:
The organisational areas which need attention and improvement are brought under the spot-light
and even the weakest gets a chance of getting stronger and more useful finally join‘s the main
strain.
8. Qualification of Intangibles:
The whole process of value analysis is an exercise of converting the intangibles to tangible for
decision making purpose. It is really difficult to make decisions on the issues where the things
are (variables) not quantifiable.
However, value analysis does it. The decision makers are provided with qualified data and on the
basis of decisions are made. Such decisions are bound to be sound.
9. Wide Spectrum of Application:
The principles and techniques of value analysis can be applied to all areas-man be purchasing,
hardware, products, systems, procedures and so on.
10. Building and Improving Company Image:
The company‘s status or image or personality is built up or improved to a great extent.
Improvement in quality and reduction in cost means competitive product and good name in
product market; it is a good pay master as sales and profits higher and labour market it enjoys
reputation; it capital market, nobody hesitates to invest as it is a quality company.
LIMITATIONS:
Like any other cost reduction technique, value analysis has its own limitations. The most
common limitations are that the man made excuses are the blocks in implementing these plans of
value analysis.
The most common excuses given are:
(a) Lack of motivation
(b) Resistive to change
(c) Inertia
(d) Lack of knowledge and patience
(e) Attitude of ‗It will not work in India
(f) We are very small or very big
(g) This has been tried earlier and failed
(h) The change is too big
(i) ‗Let competitors try before we try‘
(j) Difficulty of teams meeting or team meeting for getting consensus.
CAPACITY PLANNING
What is Capacity Planning?
Capacity planning refers to determining what kind of labour and equipment capacities are
required and when they are required. Capacity is usually planned on the basis of labour or
machine hours available within the plant. Thus, capacity planning is planning for quantity or
scale of output.
Capacity Planning – Meaning, Importance, Determinants, Procedure
There are four major considerations in capacity planning:
1. Level of demand
2. Cost of production
3. Availability of funds
4. Management policy.
Production has no meaning unless its products can be sold at a remunerative price. Generally, the
capacity of plant is limited by the level of current demand. Stable demand makes the task of
capacity planning simple while fluctuations in demand create problems concerning the
acquisition of resources and matching them up with demand levels. Estimation of demand is,
therefore, the first step in capacity planning. Size of the market depends upon the sales potential
rather than on the geographical areas.
Demand Forecasts
Demand forecasting is fundamental to effective capacity and sales planning. A demand forecast
establishes link between the internal management of the firm and its external environment.
Before making a demand forecast, the period of forecast should be decided and an
appropriate method of forecasting should be selected.
The nature of product to be sold, the size and characteristics of population, the disposable
income, degree of competition, fashion, trends, political conditions, import, export policy of
Government, etc., should be taken into consideration. In case of multiple products, product line
forecast is useful in deciding the priority of different products in the allocation of limited
resources. For example, Delhi Cotton Mills Ltd., may like to know whether to produce more of
sugar or textiles.
The demand for new product can be forecast by making consumer surveys, test marketing,
product life cycle analysis etc. The annual demand forecast is broken into monthly or weekly
forecasts for production scheduling.
Capacity planning is an integral part of the overall production planning for an enterprise.
Capacity planning and control is the process of establishing, measuring, monitoring and
adjusting the levels of capacity in order to execute all manufacturing plans and schedules in the
best possible manner.
Capacity planning involves the following questions.
1. What type of capacity is required?
2. How much capacity is required?
3. When the capacity is required?
The type of capacity required depends upon the products and services which the enterprise
intends to produce or provide. The quantity and timing of capacity is related to the quantity and
timing of demand for the product or service. The nature of demand (stable or fluctuating) is
another important consideration.
Capacity planning is an important element of production management. Decision concerning
capacity is one of the most basics decisions of production. Location, layout, and production
technology can be determined only after the capacity is decided. For example, Western
Electronics Ltd., can decide the number and type of machines, workers, materials and other
inputs only after deciding the number of TV sets to be manufactured by it.
Importance of Capacity Planning
Capacity planning is important due to the following reasons:
1. Capacity limits the rate of output. Therefore, capacity planning determines the ability of an
enterprise to meet future demand for its products and services.
2. Capacity influences the operating costs. Capacity is determined on the basis of estimated
demand. Actual demand is often different from estimated demand. As a result, there arises
excess capacity or under capacity. Excess or idle capacity increases the cost per unit of output.
Whereas under capacity results in the loss of sales.
3. Capacity decisions leave a direct impact on the amount of fixed investment made initially.
4. Capacity decisions result in long-term commitment of funds. Such long-term decisions cannot
be reversed except at major costs.
The following concepts of capacity are involved in capacity planning:
a. Design Capacity: It refers to the maximum output that can possibly be produced in a given
period of time. It is the ideal situation.
b. Effective Capacity: Refers to the maximum possible output, given the changes in product
mix, machine maintenance, scheduling and operating problems, labour problems, etc. It is
usually less than the design capacity.
c. Actual Output: It is the rate of output actually achieved. It cannot exceed effective capacity
due to machine breakdowns, labour absenteeism, irregular supply of raw materials, unusual
delay in supply of equipment, power breakdown, etc.
The effectiveness of a production system (system effectiveness) can be measured in two ways:
1. Efficiency which is the rate of actual output to effective output, and
2. Utilization which implies the rate of actual output to the design capacity.
Symbolically:
Efficiency = Actual Output / Effective Capacity
Utilization = Actual Output / Design Capacity
Every operating manager should try to increase capacity utilization by increasing effective
capacity.
Procedure for Capacity Planning
1. Assessment of Existing Capacity
Capacity of a unit can be measured in terms of output or inputs. Output measure is appropriate in
case of manufacturing concerns, e.g., automobile plant (number of cars), iron and steel plant
(tons of steel), brewery (barrels of bear), cannery (tons of food), Power Company, (megawatts of
electricity), etc. Service concerns like hospitals (number of beds), airlines (number of seats),
theatres (number of seats), restaurants (number of tables), university (number of students),
warehouse (cubic feet of space), etc., can measure capacity in terms of inputs.
2. Forecasting Future Capacity Needs
Short term capacity requirements can be estimated by forecasting product demand at different
stages of the product life cycle. It is more difficult to anticipate long-term capacity requirements
due
to uncertainties of market and technology. Capacity forecast helps to determine the gap between
the existing capacity and estimated capacity so that necessary adjustments may be made. For
example, a company engaged in manufacturing two products may find that one product has a low
demand in summer (e.g. coffee or tea) while another product has low demand in winter (e.g. cold
drink).
3. Identifying Alternative ways of Modifying Capacity
In case where the existing capacity is inadequate to meet the forecast demand capacity, the
expansion is required to meet the shortage. Additional shifts may be employed to expand the
capacity. Expansion will provide economies of scale and help in meeting the forecast demand.
But it involves additional investment and danger of fall in forecast demand in future.
When the existing capacity exceeds forecast capacity, there is a need for reduction of excess
capacity. Developing new products, selling of existing facilities, layout of workers or getting
work from other firms are the methods of overcoming it.
4. Evaluation of Alternatives
Various alternatives for capacity expansion or reduction are evaluated from economic, technical
and other viewpoints. Reactions of employees and local community should also be considered.
Cost Benefit analysis, Decision theory and Queuing theory are the main techniques of evaluating
alternatives.
5. Choice of Suitable Course of Action
After performing the cost-benefit analysis of various alternatives to expand or reduce the
capacity, the most appropriate alternative is selected.
Determinants of Effective Capacity
1. Facilities
The design of production facilities is the most important determinant of effective capacity.
Design includes the size and also the provision for expansion of the facilities. Design facilities
should be such that the employees should feel comfortable at their work place. Location
factors such as distance from the market, supply of labour, transport costs, energy sources are
also important. Layout of the work area determines how smoothly the work can be performed.
Environmental factors such as lighting, ventilation, etc., influence the effectiveness with which
employees can perform the assigned work.
2. Products or Services
Design of the company‘s products or services exerts a significant influence on capacity
utilization. When more uniform is the output, greater can be the standardization of materials and
methods and greater can be the utilization of capacity. For instance, a restaurant that offers a
limited menu can prepare and serve meals at a faster rate. Product mix should also be considered
because different products have different rates of output.
3. Process
Quantity capacity of a process is the obvious determinant of effective capacity. But if quantity of
output does not meet the quality standards, the rate of output is reduced due to the need for
inspection and rework activities.
4. Human factors
Job design (tasks that comprise a job), nature of the job (variety of activities involved), training
and experience required to perform the job, employee motivation, manager‘s leadership style,
rate of absenteeism and labour turnover are the main human factors influencing the rate of
output.
5. Operational Factors
Materials management, scheduling, quality assurance, maintenance policies and equipment
breakdowns are important determinants of effective capacity. Late delivery and low acceptability
of materials will reduce effective capacity. Inventory problems are a major hurdle in capacity
utilization. Similarly, when the alternative equipment has different capabilities there may be
scheduling problems.
6. External Factors
Product standards (minimum quality and performance standards), pollution control regulations,
safety requirements and trade union attributes exercise tremendous influence on effective
capacity. Generally, the external factors act as constraints in capacity utilization.
Unit – III
Plant location – factors influencing plant location, Plant layout- classification of layout with
advantages, layout design procedures, Production planning and control – aggregate
planning-nature, Strategies, methods, Master production Plan.
PLANT LOCATION AND LAYOUT
INTRODUCTION
Plant location or the facilities location problem is an important strategic level
decision making for an organization. One of the key features of a conversion process
(manufacturing system) is the efficiency with which the products (services) are transferred to the
customers. This fact will include the determination of where to place the plant or facility.
The selection of location is a key-decision as large investment is made in building plant
and machinery. It is not advisable or not possible to change the location very often. So an
improper location of plant may lead to waste of all the investments made in building and
machinery, equipment.
Before a location for a plant is selected, long range forecasts should be made
anticipating future needs of the company. The plant location should be based on the company‘s
expansion plan and policy, diversification plan for the products, changing market conditions, the
changing sources of raw materials and many other factors that influence the choice of the location
decision. The purpose of the location study is to find an optimum location one that will result in
the greatest advantage to the organization.
NEED FOR SELECTING A SUITABLE LOCATION

The need for selecting a suitable location arises because of three situations.
I. When starting a new organization, i.e., location choice for the first time.
II. In case of existing organization.
III. In case of Global Location.
I. In Case of Location Choice for the First Time or New Organizations:
Cost economies are always important while selecting a location for the first time, but should
keep in mind the cost of long-term business/ organizational objectives. The following are the
factors to be considered while selecting the location for the new organizations:
1. Identification of region:
The organizational objectives along with the various long-term considerations about
marketing, technology, internal organizational strengths and weaknesses, region-specific
resources and business environment, legal-governmental environment, social environment
and geographical environment suggest a suitable region for locating the operations facility.
2. Choice of a site within a region:
Once the suitable region is identified, the next step is choosing the best site from an
available set. Choice of a site is less dependent on the organization‘s long-term strategies.
Evaluation of alternative sites for their tangible and intangible costs will resolve facilities-
location problem. The problem of location of a site within the region can be approached
with the following cost-oriented non-interactive model, i.e., dimensional analysis.
3. Dimensional analysis:
If all the costs were tangible and quantifiable, the comparison and selection of a site is
easy. The location with the least cost is selected. In most of the cases intangible costs
which are expressed in relative terms than in absolute terms. Their relative merits and
demerits of sites can also be compared easily. Since both tangible and intangible costs
need to be considered for a selection of a site, dimensional analysis is used.
Need For Plant Location

The plant Location of warehouses and other facilities are also having direct bearing on the
operational performance of organizations.
The existing firms will seek new locations in order to expand the capacity or to place the existing
facilities. When the demand for product increases, it will give rise to following decisions:
 Whether to expand the existing capacity and facilities.
 Whether to look for new locations for additional facilities.
 Whether to close down existing facilities to take advantage of some new locations.
II. In Case of Location Choice for Existing Organization:

In this case a manufacturing plant has to fit into a multi-plant operations strategy. That is,
additional plant location in the same premises and elsewhere under following circumstances:
1. Plant manufacturing distinct products.
2. Manufacturing plant supplying to specific market area.
3. Plant divided on the basis of the process or stages in manufacturing.
4. Plants emphasizing flexibility.
The different operations strategies under the above circumstances could be:
1. Plants manufacturing distinct products:
Each plant services the entire market area for the organization. This strategy is necessary where
the needs of technological and resource inputs are specialized or distinctively different for the
different product-lines. For example, a high quality precision product-line should not be located
along with other product-line requiring little emphasis on precision. It may not be proper to have
too many contradictions such as sophisticated and old equipment, highly skilled and semi-skilled
personnel, delicates processes and those that could permit rough handlings, all under one roof and
one set of managers. Such a setting leads to much confusion regarding the required emphasis and
the management policies.
Product specialization may be necessary in a highly competitive market. It may be necessary
to exploit the special resources of a particular geographical area. The more decentralized these
pairs are in terms of the management and in terms of their physical location, the better would be
the planning and control and the utilization of the resources.
2. Manufacturing plants supplying to a specific market area:

Here, each plant manufactures almost all of the company‘s products. This type of strategy is
useful where market proximity consideration dominates the resources and technology
considerations. This strategy requires great deal of coordination from the corporate office. An
extreme example of this strategy is that of soft drinks bottling plants.
3. Plants divided on the basis of the process or stages in manufacturing:
Each production process or stage of manufacturing may require distinctively different equipment
capabilities, labor skills, technologies, and managerial policies and emphasis. Since the products
of one plant feed into the other plant, this strategy requires much centralized coordination of the
manufacturing activities from the corporate office that are expected to understand the various
technological aspects of all the plants.
4. Plants emphasizing flexibility:
This requires much coordination between plants to meet the changing needs and at the same time
ensure efficient use of the facilities and resources. Frequent changes in the long-term strategy in
order to improve be efficiently temporarily, are not healthy for the organization. In any facility
location problem the central question is: ‗Is this a location at which the company can remain
competitive for a long time?‘
For an established organization in order to add on to the capacity, following are the ways:
 Expansion of the facilities at the existing site: This is acceptable when it does not violate the
basic business and managerial outlines, i.e ., philosophies, purposes, strategies and
capabilities. For example, expansion should not compromise quality, delivery, or customer
service.
 Relocation of the facilities (closing down the existing ones): This is a drastic step which can
be called as ‗Uprooting and Transplanting‘. Unless there are very compelling reasons,
relocation is not done. The reasons will be either bringing radical changes in technology,
resource availability or other destabilization.
All these factors are applicable to service organizations, whose objectives, priorities and
strategies may differ from those of hardcore manufacturing organizations.
III. In Case of Global Location:

Because of globalization, multinational corporations are setting up their organizations in India
and Indian companies are extending their operations in other countries. In case of global locations
there is scope for virtual proximity and virtual factory.
VIRTUAL PROXIMITY: With the advance in telecommunications technology, a firm can be in

virtual proximity to its customers. For a software services firm much of its logistics is through the
information/ communication pathway. Many firms use the communications highway for
conducting a large portion of their business transactions. Logistics is certainly an important factor
in deciding on a location whether in the home country or abroad. Markets have to be reached.
Customers have to be contacted. Hence, a market presence in the country of the customers is
quite necessary.
VIRTUAL FACTORY: Many firms based in USA and UK in the service sector and in the
manufacturing sector often out sources part of their business processes to foreign locations such
as India. Thus, instead of one‘s own operations, a firm could use its business associates‘
operations facilities. The Indian BPO firm is a foreign-based company‘s ‗virtual service factory‘.
So a location could be one‘s own or one‘s business associates. The location decision need not
always necessarily pertain to own operations.
REASONS FOR GALOBAL/FOREIGN LOCATION

A. Tangible Reasons:
The tangible reasons for setting up an operations facility abroad could be as follows:
Reaching the customer: One obvious reason for locating a facility abroad is that of capturing a
share of the market expanding worldwide. The phenomenal growth of the GDP of India is a big
reason for the multinationals to have their operations facilities in our country. An important
reason is that of providing service to the customer promptly and economically which is logistics-
dependent. Therefore, cost and case of logistics is a reason for setting up manufacturing facilities
abroad. By logistics set of activities closes the gap between productions of goods/services and
reaching of these intended goods/services to the customer to his satisfaction. Reaching the
customer is thus the main objective. The tangible and intangible gains and costs depend upon the
company defining for itself as to what that ‗reaching‘ means. The tangible costs could be the
logistics related costs; the intangible costs may be the risk of operating is a foreign country. The
tangible gains are the immediate gains; the intangible gains are an outcome of what the company
defines the concepts of reaching and customer for itself.
The other tangible reasons could be as follows:
a. The host country may offer substantial tax advantages compared to the home country.
b. The costs of manufacturing and running operations may be substantially less in that
foreign country. This may be due to lower labor costs, lower raw material cost, better
availability of the inputs like materials, energy, water, ores, metals, key personnel etc.
c. The company may overcome the tariff barriers by setting up a manufacturing plant in a
foreign country rather than exporting the items to that country.
B. Intangible Reasons:
The intangible reasons for considering setting up an operations facility abroad could be as
follows:
1. Customer-related Reasons:
a. With an operations facility in the foreign country, the firm‘s customers may feel secure
that the firm is more accessible. Accessibility is an important ‗service quality‘
determinant.
b. The firm may be able to give a personal tough.
c. The firm may interact more intimately with its customers and may thus understand their
requirements better.
d. It may also discover other potential customers in the foreign location.
2. Organizational Learning-related Reasons:
a. The firm can learn advanced technology. For example, it is possible that cutting-edge
technologies can be learnt by having operations in a technologically more advanced
country. The firm can learn from advanced research laboratories/universities in that
country. Such learning may help the entire product-line of the company.
b. The firm can learn from its customers abroad. A physical location there may be essential
towards this goal.
c. It can also learn from its competitors operating in that country. For this reason, it may have
to be physically present where the action is.
d. The firm may also learn from its suppliers abroad. If the firm has a manufacturing plant
there, it will have intensive interaction with the suppliers in that country from whom there
may be much to learn in terms of modern and appropriate technology, modern
management methods, and new trends in business worldwide.
3. Other Strategic Reasons:
a. The firm by being physically present in the host country may gain some ‗local boy‘ kind
of psychological advantage. The firm is no more a ‗foreign‘ company just sending its
products across international borders. This may help the firm in lobbying with the
government of that country and with the business associations in that country.
b. The firm may avoid ‗political risk‘ by having operations in multiple countries.
c. By being in the foreign country, the firm can build alternative sources of supply. The firm
could, thus, reduce its supply risks.
d. The firm could hunt for human capital in different countries by having operations in those
countries. Thus, the firm can gather the best of people from across the globe.
e. Foreign locations in addition to the domestic locations would lower the market risks for
the firm. If one market goes slow the other may be doing well, thus lowering the overall
risk.
FACTORS AFFECTING IN FACILITY LOCATION:

Facility location is the process of determining a geographic site for a firm‘s operations.
Managers of both service and manufacturing organizations must weigh many factors when
assessing the desirability of a particular site, including proximity to customers and suppliers,
labor costs, and transportation costs.
Location conditions are complex and each comprises a different Characteristic of a tangible (i.e.
Freight rates, production costs) and non-tangible (i.e. reliability, frequency security, quality)
nature.
Location conditions are hard to measure. Tangible cost based factors such as wages and products
costs can be quantified precisely into what makes locations better to compare. On the other hand
non-tangible features, which refer to such characteristics as reliability, availability and security,
can only be measured along an ordinal or even nominal scale. Other non-tangible features like
the percentage of employees that are unionized can be measured as well. To sum this up non-
tangible features are very important for business location decisions.
It is appropriate to divide the factors, which influence the plant location or facility location on
the basis of the nature of the organization as
1. General location factors, which include controllable and uncontrollable factors for all type of
organizations.
2. Specific location factors specifically required for manufacturing and service organizations.
Location factors can be further divided into two categories: Dominant factors are those derived
from competitive priorities (cost, quality, time, and flexibility) and have a particularly strong
impact on sales or costs. Secondary factors also are important, but management may downplay
or even ignore some of them if other factors are more important.
FACTORS INFLUENCING PLANT LOCATION

General Location Factors:
Following are the general factors required for location of plant in case of all types of
organisations.
CONTROLLABLE FACTORS
1. Proximity to markets.
2. Supply of materials
3. Transportation facilities
4. Infrastructure availability
5. Labour and wages
6. External economies
7. Capital
UNCONTROLLABLE FACTORS
8. Government policy
9. Climate conditions
10. Supporting industries and services
11. Community and labor attitudes
12. Community Infrastructure
CONTROLLABLE FACTORS
1. Proximity to markets:
Every company is expected to serve its customers by providing goods and services at the time
needed and at reasonable price organizations may choose to locate facilities close to the market or
away from the market depending upon the product. When the buyers for the product are
concentrated, it is advisable to locate the facilities close to the market. Locating nearer to the
market is preferred if,
 The products are delicate and susceptible to spoilage.
 After sales services are promptly required very often.
 Transportation cost is high and increase the cost significantly.
 Shelf life of the product is low.
Nearness to the market ensures a consistent supply of goods to customers and reduces the cost
of transportation.
2. Supply of raw material:
It is essential for the organization to get raw material in right qualities and time in order to have an
uninterrupted production. This factor becomes very important if the materials are perishable and
cost of transportation is very high. General guidelines suggested by Yaseen regarding effects of
raw materials on plant location are:
 When a single raw material is used without loss of weight, locate the plant at the raw
material source, at the market or at any point in between.
 When weight loosing raw material is demanded, locate the plant at the raw material source.
 When raw material is universally available, locate close to the market area.
 If the raw materials are processed from variety of locations, the plant may be situated so as
to minimize total transportation costs.
Nearness to raw material is important in case of industries such as sugar, cement, jute and
cotton textiles.
3. Transportation facilities:
Speedy transport facilities ensure timely supply of raw materials to the company and finished
goods to the customers. The transport facility is a prerequisite for the location of the plant. There
are five basic modes of physical transportation, air, road, rail, water and pipeline. Goods that are
mainly intended for exports demand a location near to the port or large airport. The choice of
transport method and hence the location will depend on relative costs, convenience, and
suitability. Thus transportation cost to value added is one of the criteria for plant location.
4. Infrastructure availability:
The basic infrastructure facilities like power, water and waste disposal, etc., become the
prominent factors in deciding the location. Certain types of industries are power hungry e.g.,
aluminum and steel and they should be located close to the power station or location where
uninterrupted power supply is assured throughout the year. The non-availability of power may
become a survival problem for such industries. Process industries like paper, chemical, cement,
etc., require continuous. Supply of water in large amount and good quality, and mineral content of
water becomes an important factor. A waste disposal facility for process industries is an important
factor, which influences the plant location.
5. Labor and wages:
The problem of securing adequate number of labor and with skills specific is a factor to be
considered both at territorial as well as at community level during plant location. Importing labor
is usually costly and involve administrative problem. The history of labor relations in a
prospective community is to be studied. Prospective community is to be studied. Productivity of
labor is also an important factor to be considered. Prevailing wage pattern, cost of living and
industrial relation and bargaining power of the unions‘ forms in important considerations.
6. External economies of scale:
External economies of scale can be described as urbanization and locational economies of scale. It
refers to advantages of a company by setting up operations in a large city while the second one
refers to the ―settling down‖ among other companies of related Industries. In the case of
urbanization economies, firms derive from locating in larger cities rather than in smaller ones in a
search of having access to a large pool of labor, transport facilities, and as well to increase their
markets for selling their products and have access to a much wider range of business services.
Location economies of scale in the manufacturing sector have evolved over time and have
mainly increased competition due to production facilities and lower production costs as a result
of lower transportation and logistical costs. This led to manufacturing districts where many
companies of related industries are located more or less in the same area. As large corporations
have realized that inventories and warehouses have become a major cost factor, they have tried
reducing inventory costs by launching ―Just in Time‖ production system (the so called Kanban
System). This high efficient production system was one main factor in the Japanese car industry
for being so successful. Just in time ensures to get spare parts from suppliers within just a few
hours after ordering. To fulfill these criteria corporations have to be located in the same area
increasing their market and service for large corporations.
7. Capital:
By looking at capital as a location condition, it is important to distinguish the physiology of fixed
capital in buildings and equipment from financial capital. Fixed capital costs as building and
construction costs vary from region to region. But on the other hand buildings can also be rented
and existing plants can be expanded. Financial capital is highly mobile and does not very much
influence decisions. For example, large Multinational Corporations such as Coca- Cola operate in
many different countries and can raise capital where interest rates are lowest and conditions are
most suitable.Capital becomes a main factor when it comes to venture capital. In that case young,
fast growing (or not) high tech firms are concerned which usually have not many fixed assets.
These firms particularly need access to financial capital and also skilled educated employees.
UNCONTROLLABLE FACTORS
8. Government policy:
The policies of the state governments and local bodies concerning labor laws, building codes,
safety, etc., are the factors that demand attention. In order to have a balanced regional growth of
industries, both central and state governments in our country offer the package of incentives to
entrepreneurs in particular locations. The incentive package may be in the form of exemption
from a safes tax and excise duties for a specific period, soft loan from financial institutions,
subsidy in electricity charges and investment subsidy. Some of these incentives may tempt to
locate the plant to avail these facilities offered.
9. Climatic conditions:
The geology of the area needs to be considered together with climatic conditions (humidity,
temperature). Climates greatly influence human efficiency and behavior. Some industries require
specific climatic conditions e.g., textile mill will require humidity.
10. Supporting industries and services:
Now a day the manufacturing organization will not make all the components and parts by itself
and it subcontracts the work to vendors. So, the source of supply of component parts will be the
one of the factors that influences the location.The various services like communications, banking
services professional consultancy services and other civil amenities services will play a vital role
in selection of a location.
11. community and labor attitudes:
Community attitude towards their work and towards the prospective industries can make or mar
the industry. Community attitudes towards supporting trade union activities are important criteria.
Facility location in specific location is not desirable even though all factors are favoring because
of labor attitude towards management, which brings very often the strikes and lockouts.
12. Community infrastructure and amenity:
All manufacturing activities require access to a community infrastructure, most notably economic
overhead capital, such as roads, railways, port facilities, power lines and service facilities and
social overhead capital like schools, universities and hospitals.
These factors are also needed to be considered by location decisions as infrastructure is
enormously expensive to build and for most manufacturing activities the existing stock of
infrastructure provides physical restrictions on location possibilities.
SPECIFIC LOCATION FACTORS FOR MANUFACTURING ORGANIZATION
DOMINANT FACTORS
Factors dominating location decisions for new manufacturing plants can be broadly classified in
six groups. They are listed in the order of their importance as follows.
1. Favorable labor climate
2. Proximity to markets
3. Quality of life
4. Proximity to suppliers and resources
5. Utilities, taxes, and real estate costs
1. Favorable labor climate:
A favorable labor climate may be the most important factor in location decisions for labour-
intensive firms in industries such as textiles, furniture, and consumer electronics. Labor climate
includes wage rates, training requirements, attitudes toward work, worker productivity, and union
strength. Many executives consider weak unions or al low probability of union organizing efforts
as a distinct advantage.
2. Proximity to markets:
After determining where the demand for goods and services is greatest, management must select a
location for the facility that will supply that demand. Locating near markets is particularly
important when the final goods are bulky or heavy and outbound transportation rates are high. For
example, manufacturers of products such as plastic pipe and heavy metals all emphasize
proximity to their markets.
3. Quality of life:
Good schools, recreational facilities, cultural events, and an attractive lifestyle contribute to
quality of life. This factor is relatively unimportant on its own, but it can make the difference in
location decisions.
4. Proximity to suppliers and resources:
In many companies, plants supply parts to other facilities or rely on other facilities for
management and staff support. These require frequent coordination and communication, which
can become more difficult as distance increases?
5. Utilities, taxes, and real estate costs:
Other important factors that may emerge include utility costs (telephone, energy, and water), local
and state taxes, financing incentives offered by local or state governments, relocation costs, and
land costs.
SECONDARY FACTORS:
There are some other factors needed to be considered, including room for expansion, construction
costs, accessibility to multiple modes of transportation, the cost of shuffling people and materials
between plants, competition from other firms for the workforce, community attitudes, and many
others. For global operations, firms are emphasizing local employee skills and education and the
local infrastructure.
Specific Location Factors for Service Organization
DOMINANT FACTORS:
The factors considered for manufacturers are also applied to service providers, with one
important addition the impact of location on sales and customer satisfaction. Customers usually
look about how close a service facility is, particularly if the process requires considerable
customer contact.
PROXIMITY TO CUSTOMERS:
Location is a key factor in determining how conveniently customers can carry on business with a
firm. For example, few people would like to go to remotely located dry cleaner or supermarket if
another is more convenient. Thus the influence of location on revenues tends to be the dominant
factor.
TRANSPORTATION COSTS AND PROXIMITY TO MARKETS:
For warehousing and distribution operations, transportation costs and proximity to markets are
extremely important. With a warehouse nearby, many firms can hold inventory closer to the
customer, thus reducing delivery time and promoting sales.
LOCATION OF COMPETITORS:
One complication in estimating the sales potential at different location is the impact of
competitors. Management must not only consider the current location of competitors but also try
to anticipate their reaction to the firm‘s new location. Avoiding areas where competitors are
already well established often pays. However, in some industries, such as new-car sales
showrooms and fast- food chains, locating near competitors is actually advantageous. The
strategy is to create a critical mass, whereby several competing firms clustered in one location
attract more customers than the total number who would shop at the same stores at scattered
locations. Recognizing this effect, some firms use a follow –the leader strategy when selecting
new sites.
SECONDARY FACTORS:
Retailers also must consider the level of retail activity, residential density, traffic flow, and site
visibility. Retail activity in the area is important, as shoppers often decide on impulse to go
shopping or to eat in a restaurant. Traffic flows and visibility are important because businesses‘
customers arrive in cars. Visibility involves distance from the street and size of nearby buildings
and signs. High residential density ensures nighttime and weekend business when the population
in the area fits the firm‘s competitive priorities and target market segment.
Plant Layout in Operation Management
Plant layout refers to the physical arrangement of production facilities. It is the configuration of
departments, work centers and equipment in the conversion process. It is a floor plan of the
physical facilities, which are used in production.
According to Moore ―Plant layout is a plan of an optimum arrangement of facilities including
personnel, operating equipment, storage space, material handling equipment and all other
supporting services along with the design of best structure to contain all these facilities‖.
Plant Location and Plant Layout in Production Management
The Plant location and Plant layout in production management are
PLANT LAYOUT
DEFINITION OF PLANT LAYOUT
Plant layout refers to the physical arrangement of production facilities. It is the configuration of
departments, work centers and equipment in the conversion process. It is a floor plan of the
physical facilities, which are used in production.
According to Moore ―Plant layout is a plan of an optimum arrangement of facilities including
personnel, operating equipment, storage space, material handling equipment and all other
supporting services along with the design of best structure to contain all these facilities‖.
OBJECTIVES OF PLANT LAYOUT:
The primary goal of the plant layout is to maximize the profit by arrangement of all the plant
facilities to the best advantage of total manufacturing of the product. The objectives of plant
layout are:
1. Streamline the flow of materials through the plant.
2. Facilitate the manufacturing process.
3. Maintain high turnover of in-process inventory.
4. Minimize materials handling and cost.
5. Effective utilization of men, equipment and space.
6. Make effective utilization of cubic space.
7. Flexibility of manufacturing operations and arrangements.
8. Provide for employee convenience, safety and comfort.
9. Minimize investment in equipment.
10. Minimize overall production time.
11. Maintain flexibility of arrangement and operation.
12. Facilitate the organizational structure.
PRINCIPLES OF PLANT LAYOUT

1. Principle of integration: A good layout is one that integrates men, materials, machines and
supporting services and others in order to get the optimum utilization of resources and
maximum effectiveness.
2. Principle of minimum distance: This principle is concerned with the minimum travel (or
movement) of man and materials. The facilities should be arranged such that, the total
distance travelled by the men and materials should be minimum and as far as possible straight
line movement should be preferred.
3. Principle of cubic space utilization: The good layout is one that utilizes both horizontal and
vertical space. It is not only enough if only the floor space is utilized optimally but the third
dimension, i.e., the height is also to be utilized effectively.
4. Principle of flow: A good layout is one that makes the materials to move in forward direction
towards the completion stage, i.e., there should not be any backtracking.
5. Principle of maximum flexibility: The good layout is one that can be altered without much
cost and time, i.e., future requirements should be taken into account while designing the
present layout.
6. Principle of safety, security and satisfaction: A good layout is one that gives due
consideration to workers safety and satisfaction and safeguards the plant and machinery
against fire, theft, etc.
7. Principle of minimum handling: A good layout is one that reduces the material handling to
the minimum
CLASSIFICATION AND ADVANTAGES OF PLANT LAYOUT

Layouts can be classified into the following five categories:
1. Process layout.
2. Product layout
3. Combination layout
4. Fixed position layout
5. Group layout
Process Layout:
Process layout is recommended for batch production. All machines performing similar type of
operations are grouped at one location in the process layout e.g., all lathes, milling machines, etc.
are grouped in the shop will be clustered in like groups. Thus, in process layout the arrangement
of facilities are grouped together according to their functions. A typical process layout is shown in
the following figure. The flow paths of material through the facilities from one functional area to
another vary from product to product. Usually the paths are long and there will be possibility of
backtracking.
Process layout is normally used when the production volume is not sufficient to justify a product
layout. Typically, job shops employ process layouts due to the variety of products manufactured
and their low production volumes.
Process layout
Advantages
1. In process layout machines are better utilized and fewer machines are required.
2. Flexibility of equipment and personnel is possible in process layout.
3. Lower investment on account of comparatively less number of machines and lower cost of
general purpose machines.
4. Higher utilization of production facilities.
5. A high degree of flexibility with regards to work distribution to machineries and workers.
6. The diversity of tasks and variety of job makes the job challenging and interesting.
7. Supervisors will become highly knowledgeable about the functions under their department.
Limitations
1. Backtracking and long movements may occur in the handling of materials thus, reducing
material handling efficiency.
2. Material handling cannot be mechanized which adds to cost.
3. Process time is prolonged which reduce the inventory turnover and increases the in- process
inventory.
4. Lowered productivity due to number of set-ups.
5. Throughput (time gap between in and out in the process) time is longer.
6. Space and capital are tied up by work-in-process.
Product Layout:
In this type of layout, machines and auxiliary services are located according to the processing
sequence of the product. If the volume of production of one or more products is large, the
facilities can be arranged to achieve efficient flow of materials and lower cost per unit. Special
purpose machines are used which perform the required function quickly and reliably.
The product layout is selected when the volume of production of a product is high such that a
separate production line to manufacture it can be justified. In a strict product layout, machines
are not shared by different products. Therefore, the production volume must be sufficient to
achieve satisfactory utilization of the equipment. A typical product layout is shown in the
following figure.
Product layout
Advantages
1. The flow of product will be smooth and logical in flow lines.
2. In-process inventory is less.
3. Throughput time is less.
4. Minimum material handling cost.
5. Simplified production, planning and control systems are possible.
6. Less space is occupied by work transit and for temporary storage.
7. Reduced material handling cost due to mechanised handling systems and straight flow.
8. Perfect line balancing which eliminates bottlenecks and idle capacity.
9. Manufacturing cycle is short due to uninterrupted flow of materials.
10. Small amount of work-in-process inventory.
11. Unskilled workers can learn and manage the production.
Limitations
1. A breakdown of one machine in a product line may cause stoppages of machines in the
downstream of the line.
2. A change in product design may require major alterations in the layout.
3. The line output is decided by the bottleneck machine.
4. Comparatively high investment in equipments is required.
5. Lack of flexibility. A change in product may require the facility modification.
Combination Layout:
A combination of process and product layouts combines the advantages of both types of layouts.
A combination layout is possible where an item is being made in different types and sizes. Here
machinery is arranged in a process layout but the process grouping is then arranged in a sequence
to manufacture various types and sizes of products. It is to be noted that the sequence of
operations remains same with the variety of products and sizes. The following figure shows a
combination type of layout for manufacturing different sized gears.
Combination layout for making different types and sizes of gears
Fixed Position Layout:

This is also called the project type of layout. In this type of layout, the material, or major
components remain in a fixed location and tools, machinery, men and other materials are brought
to this location. This type of layout is suitable when one or a few pieces of identical heavy
products are to be manufactured and when the assembly consists of large number of heavy parts,
the cost of transportation of these parts is very high.
Fixed position layout
Advantages
The major advantages of this type of layout are:
1. Helps in job enlargement and upgrades the skills of the operators.
2. The workers identify themselves with a product in which they take interest and pride in doing
the job.
3. Greater flexibility with this type of layout.
4. Layout capital investment is lower.
Group Layout (or Cellular Layout):

There is a trend now to bring an element of flexibility into manufacturing system as regards to
variation in batch sizes and sequence of operations. A grouping of equipment for performing a
sequence of operations on family of similar components or products has become all the
important.
Group technology layout in Operation Management
Group technology (GT) is the analysis and comparisons of items to group them into families
with similar characteristics. GT can be used to develop a hybrid between pure process layout and
pure flow line (product) layout. This technique is very useful for companies that produce variety
of parts in small batches to enable them to take advantage and economics of flow line layout.
The application of group technology involves two basic steps; first step is to determine
component families or groups. The second step in applying group technology is to arrange the
plants equipment used to process a particular family of components. This represents small plants
within the plants. The group technology reduces production planning time for jobs. It reduces the
set-up time.
Thus group layout is a combination of the product layout and process layout. It combines the
advantages of both layout systems. If there are m-machines and n-components, in a group layout
(Group-Technology Layout), the M -machines and n -components will be divided into number of
machine-component cells (group) such that all the components assigned to a cell are almost
processed within that cell itself. Here, the objective is to minimize the intercell movements.
The basic aim of a group technology layout is to identify families of components that require
similar of satisfying all the requirements of the machines are grouped into cells. Each cell is
capable of satisfying all the requirements of the component family assigned to it.
The layout design process considers mostly a single objective while designing layouts. In process
layout, the objective is to minimize the total cost of materials handling. Because of the nature of
the layout, the cost of equipments will be the minimum in this type of layout. In product layout,
the cost of materials handling will be at the absolute minimum. But the cost of equipments would
not be at the minimum if the equipments are not fully utilized.
In-group technology layout, the objective is to minimize the sum of the cost of transportation and
the cost of equipments. So, this is called as multi-objective layout. A typical process layout is
shown .
Group layout or Cellular layout
Advantages of Group Technology Layout:

Group Technology layout can increase
1. Component standardization and rationalization.
2. Reliability of estimates.
3. Effective machine operation and productivity.
4. Customer service.
It can decrease the
1. Paper work and overall production time.
2. Work-in-progress and work movement.
3. Overall cost.
Limitations of Group Technology Layout:

This type of layout may not be feasible for all situations. If the product mix is completely
dissimilar, then we may not have meaningful cell formation.
INTRODUCTION OF PRODUCTION PLANNING AND CONTROL:

Production planning and control is a tool available to the management to achieve the
stated objectives. Thus, a production system is encompassed by the four factors. i.e., quantity,
quality, cost and time.
Production planning starts with the analysis of the given data, i.e., demand for products,
delivery schedule etc., and on the basis of the information available, a scheme of utilization of
firms resources like machines, materials and men are worked out to obtain the target in the most
economical way.
Once the plan is prepared, then execution of plan is performed in line with the details
given in the plan. Production control comes into action if there is any deviation between the
actual and planned. The corrective action is taken so as to achieve the targets set as per plan by
using control techniques.
Definition of Production Planning & Control (PPC)

Thus production planning and control can be defined as the ―direction and
coordination of firms’ resources towards attaining the prefixed goals.‖ Production planning and
control helps to achieve uninterrupted flow of materials through production line by making
available the materials at right time and required quantity.
What is Production Planning & Control (PPC)?

Production planning and control is a predetermined process which includes the use of
human resource, raw materials, machines etc. PPC is the technique to plan each and every step in
a long series of separate operation. It helps to take the right decision at the right time and at the
right place to achieve maximum efficiency.
NEED FOR PRODUCTION PLANNING AND CONTROL

The present techno-economic scenario of India emphasize on competitiveness in
manufacturing. Indian industries have to streamline the production activities and attain the
maximum utilization of firms‘ resources to enhance the productivity. Production planning and
control serves as a useful tool to coordinate the activities of the production system by proper
planning and control system. Production system can be compared to the nervous system with
PPC as a brain.
Production planning and control is needed to achieve:

1. Effective utilization of firms‘ resources.
2. To achieve the production objectives with respect to quality, quantity, cost and timeliness of
delivery.
3. To obtain the uninterrupted production flow in order to meet customers varied demand with
respect to quality and committed delivery schedule.
4. To help the company to supply good quality products to the customer on the continuous basis
at competitive rates.
Need of Production Planning and Control

Production planning is a pre-production activity. It is the pre-determination of
manufacturing requirements such as manpower, materials, machines and manufacturing process.
Ray wild defines ―Production planning is the determination, acquisition and arrangement of all
facilities necessary for future production of products.”
It represents the design of production system. Apart from planning the resources, it is
going to organize the production. Based on the estimated demand for company‘s products, it is
going to establish the production programme to meet the targets set using the various resources.
Production Control:
Inspite of planning to the minute details, most of the time it is not possible to achieve production
100 per cent as per the plan. There may be innumerable factors which affect the production
system and because of which there is a deviation from the actual plan. Some of the factors that
affect are:
1. Non-availability of materials (due to shortage, etc.);
2. Plant, equipment and machine breakdown;
3. Changes in demand and rush orders;
4. Absenteeism of workers; and
5. Lack of coordination and communication between various functional areas of business.
Thus, if there is a deviation between actual production and planned production, the control
function comes into action. Production control through control mechanism tries to take
corrective action to match the planned and actual production. Thus, production control reviews
the progress of the work, and takes corrective steps in order to ensure that programmed
production takes place. The essential steps in control activity are:
1. Initiating the production,
2. Progressing, and
3. Corrective action based upon the feedback and reporting back to the production planning.
OBJECTIVES OF PRODUCTION PLANNING AND CONTROL

1. Systematic planning of production activities to achieve the highest efficiency in production of
goods/services.
2. To organize the production facilities like machines, men, etc., to achieve stated production
objectives with respect to quantity and quality time and cost.
3. Optimum scheduling of resources.
4. Coordinate with other departments relating to production to achieve regular balanced and
uninterrupted production flow.
5. To conform to delivery commitments.
6. Materials planning and control.
7. To be able to make adjustments due to changes in demand and rush orders.
ELEMENTS OR STAGES OF PRODUCTION PLANNING AND CONTROL

The stages of Production planning and control has three phases namely:
A. Planning Phase
B. Action Phase
C. Control Phase
Phases of production planning and control
I. PLANNING PHASE:
Planning is an exercise of intelligent anticipation in order to establish how an objective can be
achieved or a need fulfilled in circumstances, which are invariably restrictive. Production
planning determines the optimal schedule and sequence of operations economic batch quantity,
machine assignment and dispatching priorities for sequencing. It has two categories of planning
namely
1. Prior planning
2. Active planning.
PRIOR PLANNING:
Prior planning means pre-production planning. This includes all the planning efforts, which are
taking place prior to the active planning.
Modules of pre-planning:
The modules of prior planning are as follows:
1. Product development and design is the process of developing a new product with all the
features, which are essential for effective use in the field, and designing it accordingly. At the
design stage, one has to take several aspects of design like, design for selling, design for
manufacturing and design for usage.
2. Forecasting is an estimate of demand, which will happen in future. Since, it is only an
estimate based on the past demand, proper care must be taken while estimating it. Given the
sales forecast, the factory capacity, the aggregate inventory levels and size of the work force,
the manager must decide at what rate of production to operate the plant over an intermediate
planning horizon.
3. Aggregate planning aims to find out a product wise planning over the intermediate planning
horizon.
4. Material requirement planning is a technique for determining the quantity and timing for the
acquisition of dependent items needed to satisfy the master production schedule.
ACTIVE PLANNING:
The modules of active planning are: Process planning and routing, Materials planning. Tools
planning, Loading, Scheduling etc.
1. Process planning and routing is a complete determination of the specific technological
process steps and their sequence to produce products at the desired quality, quantity and cost.
It determines the method of manufacturing a product selects the tools and equipments,
analyses how the manufacturing of the product will fit into the facilities. Routing in particular
prescribes the flow of work in the plant and it is related to the considerations of layout,
temporary locations for raw materials and components and materials handling systems.
2. A material planning is a process which determines the requirements of various raw
materials/subassemblies by considering the trade-off between various cost components like,
carrying cost, ordering cost, shortage cost, and so forth.
3. Tools’ planning determines the requirements of various tools by taking process specification
(surface finish, length of the job, overall depth of cut etc.), material specifications (type of
material used, hardness of the material, shape and size of the material etc.) and equipment
specifications (speed range, feed range, depth of cut range etc.).
4. Loading is the process of assigning jobs to several machines such that there is a load balance
among the machines. This is relatively a complex task, which can be managed with the help of
efficient heuristic procedures.
5. Scheduling is the time phase of loading and determines when and in what sequence the work
will be carried out. This fixes the starting as well as the finishing time for each job.
II. ACTION PHASE:

Action phase has the major step of dispatching. Dispatching is the transition from planning
phase to action phase. In this phase, the worker is ordered to start manufacturing the product.
The tasks which are included in dispatching are job order, store issue order, tool order, time
ticket, inspection order, move order etc.
The job order number is the key item which is to be mentioned in all other reports/orders.
Stores issue order gives instruction to stores to issue materials for manufacturing the product as
per product specifications. As per tooling requirements for manufacturing the product, the tool
Order instruct the tool room to issue necessary tools.
Time ticket is nothing but a card which is designed to note down the actual time taken at various
processes. This information is used for deciding the costs for future jobs of similar nature and
also for performing variance analysis, which helps to exercise control.
Job order is the official authorization to the shop floor to start manufacturing the product.
Generally, the process sequence will contain some testing and inspection. So, these are to be
instructed to inspection wing in the form of inspection order for timely testing and inspection so
that the amount of rework is minimized. The manufacture of product involves moving raw
materials/subassemblies to the main line. This is done by a well-designed materials handling
system. So, proper instruction is given to the materials handling facilities for major movements
of materials/subassemblies in the form of a move order. Movements which involve less distance
and fewer loads are managed at the shop floor level based on requests from operators.
III. CONTROL PHASE:

The control phase has the following two major modules:
1. Progress reporting, and
2. Corrective action.
1. PROGRESS REPORTING:
In progress reporting, the data regarding what is happening with the job is collected. Also, it
helps to make comparison with the present level of performance. The various data pertaining
to materials rejection, process variations, equipment failures, operator efficiency, operator
absenteeism, tool life, etc., are collected and analyzed for the purpose of progress reporting.
These data are used for performing variance analysis, which would help us to identify critical
areas that deserve immediate attention for corrective actions.
2. CORRECTIVE ACTION:
The tasks under corrective action primarily make provisions for an unexpected event. Some
examples of corrective actions are creating schedule flexibility, schedule modifications,
capacity modifications, make or buy decisions, expediting the work, pre-planning, and so on.
Due to unforeseen reasons such as, machine breakdown, labor absenteeism, too much
rejection due to poor material quality etc., it may not be possible to realize the schedule as per
the plan. Under such condition, it is better to reschedule the whole product mix so that we get
a clear picture of the situation to progress further. Under such situation, it is to be re-examined
for selecting appropriate course of action. Expediting means taking action if the progress
reporting indicates deviations from the originally set targets. Pre-planning of the whole affair
becomes essential in case the expediting fails to bring the deviated plan to its right path.
PRODUCTION PLANNING AND CONTROL FUNCTIONS

Functions of production planning and controlling is classified into:
1. Pre-planning function
2. Planning function
3. Control function
1. PRE-PLANNING FUNCTION:
Pre-planning is a macro level planning and deals with analysis of data and is an outline of the
planning policy based upon the forecasted demand, market analysis and product design and
development. This stage is concerned with process design (new processes and developments,
equipment policy and replacement and work flow (Plant layout). The pre-planning function of
PPC is concerned with decision-making with respect to methods, machines and work flow
with respect to availability, scope and capacity.
2. PLANNING FUNCTION:
The planning function starts once the task to be accomplished is specified, with the analysis
of four M‟s, i.e., Machines, Methods, Materials and Manpower. This is followed by process
planning (routing). Both short-term (near future) and long-term planning are considered.
Standardization, simplification of products and processes are given due consideration.
3. CONTROL FUNCTION:
Control phase is effected by dispatching, inspection and expediting materials control, analysis
of work-in-process. Finally, evaluation makes the PPC cycle complete and corrective actions
are taken through a feedback from analysis. A good communication, and feedback system is
essential to enhance and ensure effectiveness of PPC.
PARAMETERS FOR PPC:

The functions of PPC can be explained with the following parameters:
1. Materials: Raw materials, finished parts and bought out components should be made available
in required quantities and at required time to ensure the correct start and end for each
operation resulting in uninterrupted production. The function includes the specification of
materials (quality and quantity) delivery dates, variety reduction (standardization)
procurement and make or buy decisions.
2. Machines and equipment: This function is related with the detailed analysis of available
production facilities, equipment down time, maintenance policy procedure and schedules.
Concerned with economy of jigs and fixtures, equipment availability. Thus, the duties include
the analysis of facilities and making their availability with minimum down time because of
breakdowns.
3. Methods:
This function is concerned with the analysis of alternatives and selection of the best method
with due consideration to constraints imposed. Developing specifications for processes is an
important aspect of PPC and determination of sequence of operations.
4. Process planning (Routing):
It is concerned with selection of path or route which the raw material should follow to get
transformed into finished product. The duties include:
a. Fixation of path of travel giving due consideration to layout.
b. Breaking down of operations to define each operation in detail.
c. Deciding the set up time and process time for each operation.
5. Estimating:
Once the overall method and sequence of operations is fixed and process sheet for each
operation is available, then the operations times are estimated. This function is carried out
using extensive analysis of operations along with methods and routing and a standard time for
operation are established using work measurement techniques.
6. Loading and scheduling:
Scheduling is concerned with preparation of machine loads and fixation of starting and
completion dates for each of the operations. Machines have to be loaded according to their
capability of performing the given task and according to their capacity. Thus the duties
include:
a. Loading, the machines as per their capability and capacity.
b. Determining the start and completion times for each operation.
c. To coordinate with sales department regarding delivery schedules.
7. Dispatching:
This is the execution phase of planning. It is the process of setting production activities in
motion through release of orders and instructions. It authorizes the start of production
activities by releasing materials, components, tools, fixtures and instruction sheets to the
operator. The activities involved are:
a. To assign definite work to definite machines, work centers and men.
b. To issue required materials from stores.
c. To issue jigs, fixtures and make them available at correct point of use.
d. Release necessary work orders, time tickets, etc., to authorize timely start of operations.
e. To record start and finish time of each job on each machine or by each man.
8. Expediting:
This is the control tool that keeps a close observation on the progress of the work. It is logical
step after dispatching which is called ‗follow-up‘. It coordinates extensively to execute the
production plan. Progressing function can be divided into three parts, i.e., follow up of
materials, follow up of work-in-process and follow up of assembly. The duties include:
a. Identification of bottlenecks and delays and interruptions because of which the production
schedule may be disrupted.
b. To devise action plans (remedies) for correcting the errors.
c. To see that production rate is in line with schedule.
9. Inspection:
It is a major control tool. Though the aspects of quality control are the separate function, this
is of very much important to PPC both for the execution of the current plans and its scope for
future planning. This forms the basis for knowing the limitations with respects to methods,
processes, etc., which is very much useful for evaluation phase.
10. Evaluation:
This stage though neglected is a crucial to the improvement of productive efficiency. A
thorough analysis of all the factors influencing the production planning and control helps to
identify the weak spots and the corrective action with respect to pre-planning and planning
will be effected by a feedback. The success of this step depends on the communication, data
and information gathering and analysis.
AGGREGATE PLANNING:-
Aggregate planning meaning
Aggregate planning is an intermediate term planning decision. It is the process of planning the
quantity and timing of output over the intermediate time horizon (3 months to one year). Within
this range, the physical facilities are assumed to –10 be fixed for the planning period. Therefore,
fluctuations in demand must be met by varying labor and inventory schedule. Aggregate
planning seeks the best combination to minimize costs.
Aggregate Planning importance

 Achieving financial goals by reducing overall variable cost and improving the bottom
line
 Maximum utilization of the available production facility
 Provide customer delight by matching demand and reducing wait time for customers
 Reduce investment in inventory stocking
 Able to meet scheduling goals there by creating a happy and satisfied work force
Nature or Characteristics of the Aggregate Planning:

 A planning horizon is considered from about 3 to 18 months, with the periodic updating.
 Aggregate product demand, stated in the common terms is observed.
 Aggregate resource quantities, stated in the common terms are observed.
 Influence both the supply and the demand by adjusting the production rates, workforce
levels, the inventory levels etc., but the facilities cannot be expanded.
Aggregate Planning Strategies:

The variables of the production system are labor, materials and capital. More labor effort is
required to generate higher volume of output. Hence, the employment and use of overtime (OT)
are the two relevant variables. Materials help to regulate output. The alternatives available to the
company are inventories, back ordering or subcontracting of items. These controllable variables
constitute pure strategies by which fluctuations in demand and uncertainties in production
activities can be accommodated by using the following steps:
1. Vary the size or the workforce: Output is controlled by hiring or laying off workers in
proportion to changes in demand.
2. Vary the hours worked: Maintain the stable workforce, but permit idle time when there is a
slack and permit overtime (OT) when demand is peak.
3. Vary inventory levels: Demand fluctuations can be met by large amount of inventory.
4. Subcontract: Upward shift in demand from low level. Constant production rates can be met
by using subcontractors to provide extra capacity.
Methods and Guidelines of Aggregate Planning

The following are the guidelines for aggregate planning:
1. Determine corporate policy regarding controllable variables.
2. Use a good forecast as a basis for planning.
3. Plan in proper units of capacity.
4. Maintain the stable workforce.
5. Maintain needed control over inventories.
6. Maintain flexibility to change.
7. Respond to demand in a controlled manner.
8. Evaluate planning on a regular base.
MASTER PRODUCTION PLAN OR MASTER PRODUCTION SCHEDULE

INTRODUCTION:
Master scheduling follows aggregate planning. It expresses the overall plans in terms of
specific end items or models that can be assigned priorities. It is useful to plan for the material
and capacity requirements.
Flowchart of aggregate plan and master production schedule is shown in the following figure.
Time interval used in master scheduling depends upon the type, volume, and component lead
times of the products being produced. Normally weekly time intervals are used. The time horizon
covered by the master schedule also depends upon product characteristics and lead times. Some
master schedules cover a period as short as few weeks and for some products it is more than a
year.
FUNCTIONS OF MASTER PRODUCTION SCHEDULE

Master Production Schedule (MPS) gives a formal detail of the production plan and
converts this plan into specific material and capacity requirements. The requirements with
respect to labor, material and equipment are then assessed. The main functions of MPS are:
1. To translate aggregate plans into specific end items: Aggregate plan determines level of
operations that tentatively balances the market demands with the material, labor and
equipment capabilities of the company. A master schedule translates this plan into specific
number of end items to be produced in specific time period.
Flowchart of aggregate plan and master schedule
2. Evaluate alternative schedules: Master schedule is prepared by trial and error. Many
computer simulation models are available to evaluate the alternate schedules.
3. Generate material requirement: It forms the basic input for material requirement planning
(MRP).
4. Generate capacity requirements: Capacity requirements are directly derived from MPS.
Master scheduling is thus a prerequisite for capacity planning.
5. Facilitate information processing: By controlling the load on the plant. Master schedule
determines when the delivery should be made. It coordinates with other management
information systems such as, marketing, finance and personnel.
6. Effective utilization of capacity: By specifying end item requirements schedule establishes
the load and utilization requirements for machines and equipment.
Unit – IV
Quality control-Definition, need, Quality control techniques, control charts, acceptance
sampling, six sigma, quality circles. TQM-scope, benefits. JIT.
Quality and Quality Control:

What is Quality?
Quality is the degree of excellence a product possesses with respect to design of product and
conformity with certain prescribed standards and specifications; so as to meet customers‘
expectations most satisfactorily.
John D. Mclellan defines quality as follows:
―Quality is the degree to which a product conforms to specifications and workmanship
standards.‖
What is Quality Control?

Quality control may be defined as follows:
Quality control involves establishment of quality standards and installation of systems to ensure
that these standards are maintained and practiced.
DEFINITIONS OF QUALITY CONTROL:

(1) ―Quality control is systematic control of management of the variables in the manufacturing
process that affects goodness of the end product.‖ —H.N. Broom.
(2) ―Quality control means the recognition and removal of identifiable causes of defects and
variations from the set standards.‖ —J. A. Shubin
(3) ―Quality control is that industrial management technique or group of techniques by means
of which products of uniform acceptable quality are manufactured.‖ —Alford and Beaty.
STEPS IN THE PROCESS OF QUALITY CONTROL:

1. Formulate quality policy.
2. Set the standards or specifications on the basis of customer‘s preference, cost and profit.
3. Select inspection plan and set up procedure for checking.
4. Detect deviations from set standards of specifications.
5. Take corrective actions or necessary changes to achieve standards.
6. Decide on salvage method i.e., to decide how the defective parts are disposed of, entire scrap
or rework.
7. Coordination of quality problems.
8. Developing quality consciousness both within and outside the organization.
9. Developing procedures for good vendor-vendee relations.
SIGNIFICANCE OF QUALITY CONTROL:

Quality control is significant for the following reasons:
(i) Cost Reduction and Profit Maximization:
Quality control helps in better utilisation of productive resources; and in elimination of all sort of
wastes. Thus it leads to cost reduction and profit maximisation for the enterprise.
(ii) Increase in Operational Efficiency:
Quality control implies control over quality of raw-materials, performance of men and machines
etc. Thus it brings about more operational efficiency of the organisation.
(iii) Maximum Customer Satisfaction:
Quality control minimizes complaints from customers and results in maximum customer
satisfaction. It is quality that brings customers back for a second time, third time and so on. Thus
quality control leads to sales maximisation; and consequently profit maximisation.
(iv) Good-Will and Image of the Enterprise:
Quality control builds goodwill of the enterprise in society. It makes for an image of the
enterprise in the eyes of the public, due to the quality products offered by the enterprise.
(v) Insurance against Heavy Losses:
Quality control protects the manufacturer against heavy losses which may be caused due to
rejection of large quantity of sub-standard products.
(vi) Promotes Employees’ Productivity:
Quality control inculcates a feeling of quality consciousness among employees; and promotes
their productivity.
(vii) Morale of Employees:
Quality control heightens morale of employees; as they feel that they are working for an
enterprise producing goods of superior quality.
Objectives of Quality Control:

To improve the companies income by making the production more acceptable to the
customers, i.e., by providing long life, greater usefulness, maintainability etc.
1. To reduce companies cost through reduction of losses due to defects.
2. To achieve interchangeability of manufacture in large scale production.
3. To produce optimal quality at reduced price.
4. To ensure satisfaction of customers with productions or services or high quality
level, to build customer goodwill, confidence and reputation of manufacturer.
5. To make inspection prompt to ensure quality control.
6. To check the variation during manufacturing.
The broad areas of application of quality control are incoming material control, process control
and product control.
Benefits of Quality Control

 Improving the quality of products and services.
 Increasing the productivity of manufacturing processes, commercial business,
and corporations.
 Reducing manufacturing and corporate costs.
 Determining and improving the marketability of products and services.
 Reducing consumer prices of products and services.
 Improving and/or assuring on time deliveries and availability.
 Assisting in the management of an enterprise.
Techniques of Quality Control:

(I) Inspection
(II) Statistical quality control (SQC)
Let us describe both these techniques.
(I) Inspection:
Inspection is that component of quality control programme which is concerned with checking on
the performance of items to the specifications set for it. It involves periodic checking and
measuring – before, during and after the production process. Because of the numerous variables
that enter into manufacturing, inspection is a never ending process.
Inspection may be „Centralised‟ or „Floor Inspection.‟
Under centralized inspection, all the work from a department is sent to the Inspection
Department, before passing on to the next operation. Floor inspection, on the other hand, follows
the practice of sending inspectors to the floor and inspects work at the machines of operatives. It
is also called patrolling or travelling inspection.
Advantages of centralized inspection:

(i) Centralised inspection ensures impartial supervision; because the inspector is not under the
strain of not rejecting the work of a person with him he has good personal relations.
(ii) Under centralized inspection, it is easier to keep records of items/parts which are approved or
rejected.
(iii) Production work is liable to less interruption, under centralized inspection.
Advantages of floor inspection:

(i) Since work is inspected on the floor; delay in sending work to next station is avoided.
(ii) Inspector can immediately locate the fault and suggest rectification.
(iii) It involves minimum material handling.
(II) Statistical Quality Control (SQC):

SQC is based upon the laws of probability. It is a system for controlling the quality of production
within specified limits (tolerance limits) by means of a sample procedure and continuing analysis
of inspection results.
Grant defines SQC as follows:

―SQC is a simple statistic method for determining the extent to which quality goods are being
met without necessarily checking every item produced and for indicating whether or not the
variations which occur are exceeding normal expectations. It enables us to decide whether to
reject or accept a particular product.‖
Point of Comment:
SQC does not produce a quality product. It merely informs management that things are not going
as they should. Management must take necessary action to remove the causes of variations and
ensure production of quality products.
Inspections vs. SQC:
It is an interesting academic exercise to compare inspection and SQC.
The two techniques of quality control may be compared as follows:
(i) The result of inspection is acceptance or rejection of production; while SQC enables
management to take action so that products will meet specifications. As such inspection enables
one ―to be wiser after the event‖ whereas SQC enables one “to get wiser before the event.”
(ii) Inspection can be cent per cent; while SQC always involves sampling.
Techniques of SQC:
Techniques of SQC can be divided into two parts:
(1) Process control
(2) Acceptance sampling
Following is a brief account of these techniques of SQC:
(1) Process Control:
The checking up of quality characteristics under process control is done with the help of charts.
There may be many types of charts like ‗X-Chart‘, ‗R-Chart‘, ‗C-Chart‘ and ‗P-Chart‘. All
types of charts are similar in composition and structure. All of them represent how quality-
characteristic is changing from one sample to another.
A control chart when prepared would appear as follows:
Note: UCL = Upper Control Limit

LCL = lower control Limit
A process is considered out of control and an action to check and correct the process is taken;
when a plotted point falls outside the control limits.
Advantages of control charts:

1. They provide visual aids
2. They are easy to prepare.
3. They give early warning of trouble
(2) Acceptance Sampling:
Control charts are useful for process control. In case of receipt of materials and dispatch of
finished goods; a different method is used, that of acceptance sampling. Acceptance sampling
plans are of utmost value when the nature of the process used to manufacture products remains
unchanged.
In acceptance sampling, decisions [e.g. whether acceptable/not acceptable (rejection)] about the
quality of batches or lots are made after inspection of only a portion i.e. a sample. If the sample
of items conforms to requisite quality levels; then the whole batch from which the sample is
taken is accepted. If the sample does not conform to the requisite quality level; then the whole
batch is rejected.
An acceptance sampling is defined as:

Lot size (N)
Sample size (n)
Acceptance number (C)
Suppose N = 9000; n = 300 and C = 7; then this sampling plan means that a lot of 9000 items has
300 units (sample size) inspected. If seven or less defectives are found in 300 units‘ sample; the
lot is accepted. If eight or more defectives are found in the sample; the lot is rejected.
A close study of acceptance sampling technique would reveal that there is likelihood that a lot of
satisfactory quality is rejected on the basis of sample result. This is technically called producer‘s
risk. Similarly, the consumer (or buyer) has the risk of accepting a lot of unsatisfactory quality,
on the basis of sample results. This risk is called consumer‘s risk.
Advantages of acceptance sampling:

(i) Less expensive than 100% inspection
(ii) Used where 100% inspection is not possible.
(iii) Useful when inspection may cause damage or complete destruction.
Advantages of SQC:
(i) Reduced Cost:
Since only a fraction of output is inspected; costs of inspection are greatly reduced.
(ii) Early Warning of Defects:
SQC gives an early warning of defects in the production process; so that these defects can be
detected and corrected at inception.
(iii) Simple Technique:
SQC techniques are simple and can be operated by semi-skilled operators.
(iv) Continuous Inspection:
SQC is a technique which provides a continuous inspection of the product at various stages of
the manufacturing process.
(v) Adherence to Specifications:
SQC enables a process to be held in a state of statistical control i.e. a state in which variability is
the result of chance causes alone.
Seven Tools for Quality Control:
To make rational decisions using data obtained on the product, or process, or from the consumer,
organizations use certain graphical tools. These methods help us learn about the characteristics of
a process, its operating state of affairs and the kind of output we may expect from it. Graphical
methods are easy to understand and provide comprehensive information; they are a viable tool
for the analysis of product and process data. These tools are effect on quality improvement. The
seven quality control tools are:
1. Pareto charts
2. Check sheets
3. Cause and effect diagram
4. Scatter diagrams
5. Histogram
6. Graphs or flow charts
7. Control charts
1. PARETO CHARTS:
Pareto charts help prioritize by arranging them in decreasing order of importance. In an
environment of limited resources these diagrams help companies to decide on the order in
which they should address problems. The Pareto analysis can be used to identify the problem
in a number of forms.
a. Analysis of losses by material (number or past number).

b. Analysis of losses by process i.e., classification of defects or lot rejections in terms of the
process.
c. Analysis of losses by product family.
d. Analysis by supplier across the entire spectrum of purchases.
e. Analysis by cost of the parts.
f. Analysis by failure mode.
Example:
A Pareto chart of reasons for poor quality. Poor design will be the major reason, as indicated
by 64%. Thus, this is the problem that the manufacturing unit should address first.
G. Poor Design
H. Defective Parts
I. Operator Error
J. Wrong Dimensions
K. Surface Abrasion
L. Machine Calibrations
M. Defective Material
CHECK SHEETS:
Check sheets facilitate systematic record keeping or data collection observations are recorded
as they happen which reveals patterns or trends. Data collection through the use of a checklist
is often the first step in analysis of quality problem. A checklist is a form used to record the
frequency of occurrence of certain product or service characteristics related to quality. The
characteristics may be measurable on a continuous scale such as weight, diameter, time or
length.
Pareto chart
Example:
The table is a check sheet for an organization‘s computer related problems.
Checklist
CAUSE AND EFFECT DIAGRAM:

It is sometimes called as Fish-bone diagram. It is first developed by Kaorv Ishikawa in 1943
and is sometimes called as Ishikawa diagram. The diameter helps the management trace
customer complaints directly to the operations involved. The main quality problem is referred
to Fish-head; the major categories of potential cause structural bones and the likely specific
causes to ribs. It explores possible causes of problems, with the intention being to discover
the root causes. This diagram helps identify possible reasons for a process to go out of control
as well as possible effects on the process.
Fishbone diagram
SCATTER DIAGRAM (SCATTER PLOTS)

It often indicates the relationship between two variables. They are often used as follow-ups to
a cause and effect analysis to determine whether a stated cause truly does impact the quality
characteristics.
Scatter diagram
Example:
The plots advertising expenditure against company sales and indicates a strong positive
relationship between the two variables. As the level of advertising expenditure increases sales
tend to increase.
HISTOGRAM (OR) BAR CHARTS:

It displays the large amounts of data that are difficult to interpret in their raw form. A
histogram summarizes data measured on a continuous scale showing the frequency
distribution of some quality characteristics (in statistical terms the central tendency and the
dispersion of the data).
Histogram
Often the mean of the data is indicated on the histogram. A bar chart is a series of bare
representing the frequency of occurrence of data characteristics, the bar height indicates the
number of times a particular quality characteristic was observed.
FLOW CHARTS (OR) GRAPHS:

It shows the sequence of events in a process. They are used for manufacturing and service
operations. Flow charts are often used to diagram operational procedures to simplify the
system. They can identify bottlenecks, redundant steps and non-value added activities. A
realistic flow chart can be constructed by using the knowledge of the person who are directly
involved in the particular process. The flow chart can be identifies where delays can occur.
Flowchart
CONTROL CHARTS:
It distinguishes special causes of variations from common causes of variation. They are used to
monitor and control process on an ongoing basis. A typical control chart plots a selected quality
characteristic found from sub-group of observations as a function of sample number.
Characteristics such as sample average, sample range and sample proportion of non-conforming
units are plotted. The centre line on a control chart represents the average value of characteristics
being plotted. Two limits know as the upper control limit (UCL) and lower control limit (LCL)
are also shown on control charts. These limits are constructed so that if the process is operating
under a stable system of chance causes, the problem of an observation falling outside these limits
is quite small. The following figure shows a generalized representation of a control chart. Control
chart shows the performance of a process from two points of view.
First, they show a snapshot of the process at the moment the data are collected.
Second, they show the process trend as time progresses. Process trends are important because
they help in identifying the out-of-control status if it actually exists. Also, they help to detect
variations outside the normal operational limits, and to identify the cause of variations. Fig.
shows a generalized representation of a control chart.
Control charts
Causes of Variation in Quality:

The variation in the quality of product in any manufacturing process is broadly classified as:
A. Chance causes
B. Assignable causes.
A. CHANCE CAUSES:
The chance causes are those causes which are inherit in manufacturing process by virtue of
operational and constructional features of the equipments involved in a manufacturing
process.
This is because of
1. Machine vibrations
2. Voltage variations
3. Composition variation of material, etc.
They are difficult to trace and difficult to control, even under best condition of production.
Even though, it is possible to trace out, it is not economical to eliminate. The chance causes
results in only a minute amount of variation in process. Variation in chance causes is due to
internal factors only the general pattern of variation under chance causes will follow a stable
statistical distribution (normal distribution). Variation within the control limits means only
random causes are present.
B. ASSIGNABLE CAUSES:
These are the causes which creates ordinary variation in the production quality. Assignable
cause‘s variation can always be traced to a specific quality. They occur due to
1. Lack of skill in operation

2. Wrong maintenance practice
3. New vendors
4. Error in setting jigs and fixtures
5. Raw material defects
Variation due to these causes can be controlled before the defective items are produced. Any one
assignable cause can result in a large amount of variation in process. If the assignable causes are
present, the system will not follow a stable statistical distribution. When the actual variation
exceeds the control limits, it is a signal that assignable causes extend the process and process
should be investigated.
SIX SIGMA
Introduction to Six Sigma:
In today‘s competitive world – there is no room for any type of error, everyone wants quick and
efficient access to information, products and services – so it has become very important and
mandatory to bring some critical changes, in the ways by which a company conducts or carries
its various business activities. The company should make it a point to delight their customers by
fulfilling their expectations. To help this cause, six sigma plays a very critical role as it lays a lot
of emphasis on ―Quality must become a part of the culture‖
Objectives of six sigma:

 To give good performance and reliability
 To provide value to the end customer
 Reducing or minimizing defects in any type of process (reducing defects to less
 than 3.4 million operations).
 To eliminate wasteful practices i.e. the practices which do not provide any value to the
process, should be eliminated.
 Providing after sales service quality
 Improving the quality of the product
 Satisfying both internal and external customers
Benefits of Six sigma:

 Transaction involving six sigma provides services and products, free from defects.
 Lower production, inspection and warranty costs, with tension free conditions for
working.
 Greater satisfaction of the customer, resulting in better place and better reputation in the
market.
 Moving from % defect AQL PPM (parts per million) to PPB (parts per billion) to zero
defect (Zero variation), which automatically results in achievement of excellence in the
process.

Principles of six sigma:
 The use of pro active thinking to achieve perfection.
 Top priority should always be service towards customer, stress towards understanding
their needs and expectations and trying to fulfill them.
 Boundary less collaboration, supported by data and fact driven management.
 Failure is allowed but through risk management techniques.
The Six Sigma Methodology

The two main Six Sigma methodologies are DMAIC and DMADV. Each has its own set of
recommended procedures to be implemented for business transformation.
DMAIC is a data-driven method used to improve existing products or services for better
customer satisfaction. It is the acronym for the five phases: D – Define, M – Measure, A –
Analyse, I – Improve, C – Control. DMAIC is applied in the manufacturing of a product or
delivery of a service.
DMADV is a part of the Design for Six Sigma (DFSS) process used to design or re-design
different processes of product manufacturing or service delivery. The five phases of DMADV
are: D – Define, M – Measure, A – Analyse, D – Design, V – Validate. DMADV is employed
when existing processes do not meet customer conditions, even after optimization, or when it is
required to develop new methods. It is executed by Six Sigma Green Belts and Six Sigma Black
Belts and under the supervision of Six Sigma Master Black Belts. We'll get to the belts later.
The two methodologies are used in different business settings, and professionals seeking to
master these methods and application scenarios would do well to take an online certificate
program taught by industry experts.
The Six Sigma Process

Although Six Sigma uses various methods to discover deviations and solve problems, the
DMAIC is the standard methodology used by Six Sigma practitioners. Six Sigma uses a data-
driven management process used for optimizing and improving business processes. The
underlying framework is a strong customer focus and robust use of data and statistics to
conclude.
The Six Sigma Process of the DMAIC method has five phases:
Each of the above phases of business transformation has several steps:

1. DEFINE
The Six Sigma process begins with a customer-centric approach.
 The business problem is defined from the customer perspective.
 Goals are set. What do you want to achieve? What are the resources you will use to
achieve the goals?
 Map the process. Verify with the stakeholders that you are on the right track.
2. MEASURE
The second phase is focused on the metrics of the project and the tools used in the measurement.
How can you improve? How can you quantify this?
 Measure your problem in numbers or with supporting data.
 Define performance yardstick. Fix the limits for "Y."
 Evaluate the measurement system to be used. Can it help you achieve your outcome?
3. ANALYZE
The third phase analyzes the process to discover the influencing variables.
 Determine if your process is efficient and effective. Does the process help achieve
what you need?
 Quantify your goals in numbers. For instance, reduce defective goods by 20%.
 Identify variations using historical data.
4. IMPROVE
This process investigates how the changes in "X" impacts "Y." This phase is where you
identify how you can improve the process implementation.
 Identify possible reasons. Test to identify which of the "X" variables identified in
Process III influence "Y."
 Discover relationships between the variables.
 Establish process tolerance, defined as the precise values that certain variables can
have, and still fall within acceptable boundaries, for instance, the quality of any given
product. Which boundaries need X to hold Y within specifications? What operating
conditions can impact the outcome? Process tolerances can be achieved by using tools
like robust optimization and validation set.
5. CONTROL
In this final phase, you determine that the performance objective identified in the previous phase
is well implemented and that the designed improvements are sustainable.
 Validate the measurement system to be used.
 Establish process capability. Is the goal being met? For instance, will the goal of
reducing defective goods by 20 percent be achieved?
 Once the previous step is satisfied, implement the process.
SIX SIGMA TECHNIQUES

The Six Sigma methodology also uses a mix of statistical and data analysis tools such as process
mapping and design and proven qualitative and quantitative techniques, to achieve the desired
outcome.
Brainstorming
Brainstorming is the key process of any problem-solving method and is often utilized in the
"improve" phase of the DMAIC methodology. It is a necessary process before anyone starts
using any tools. Brainstorming involves bouncing ideas and generating creative ways to
approach a problem through intensive freewheeling group discussions. A facilitator, who is
typically the lead Black Belt or Green Belt, moderates the open session among a group of
participants.
Root Cause Analysis/The 5 Whys

This technique helps to get to the root cause of the problems under consideration and is
used in the "analyze" phase of the DMAIC cycle.
In the 5 Whys technique, the question "why" is asked, again and again, finally leading up
to the core issue. Although "five" is a rule of thumb, the actual number of questions can be
greater or fewer, whatever it takes to gain clarity.
Voice of the Customer

This is the process used to capture the "voice of the customer" or customer feedback by either
internal or external means. The technique is aimed at giving the customer the best products and
services. It captures the changing needs of the customer through direct and indirect methods. The
voice of the customer technique is used in the "define' phase of the DMAIC method, usually to
further define the problem to be addressed.
The 5S System
This technique has its roots in the Japanese principle of workplace energies. The 5S System is
aimed at removing waste and eliminating bottlenecks from inefficient tools, equipment, or
resources in the workplace. The five steps used are Seiri (Sort), Seiton (Set In Order),
Seiso (Shine), Seiketsu (Standardize), and Shitsuke (Sustain).
Kaizen (Continuous Improvement)

The Kaizen technique is a powerful strategy that powers a continuous engine for business
improvement. It is the practice continuously monitoring, identifying, and executing
improvements. This is a particularly useful practice for the manufacturing sector. Collective and
ongoing improvements ensure a reduction in waste, as well as immediate change whenever the
smallest inefficiency is observed.
Benchmarking
Benchmarking is the technique that employs a set standard of measurement. It involves making
comparisons with other businesses to gain an independent appraisal of the given situation.
Benchmarking may involve comparing important processes or departments within a business
(internal benchmarking), comparing similar work areas or functions with industry leaders
(functional benchmarking), or comparing similar products and services with that of competitors
(competitive benchmarking).
Poka-yoke (Mistake Proofing)
This technique's name comes from the Japanese phrase meaning "to avoid errors," and entails
preventing the chance of mistakes from occurring. In the poka-yoke technique, employees spot
and remove inefficiencies and human errors during the manufacturing process.
Value Stream Mapping

The value stream mapping technique charts the current flow of materials and information to
design a future project. The objective is to remove waste and inefficiencies in the value stream
and create leaner operations. It identifies seven different types of waste and three types of waste
removal operations.
THE SIX SIGMA TOOLS

1. Cause and Effect Analysis
2. Flow Chart
3. Pareto Chart
4. Histogram
5. Check Sheet
6. Scatter Plot
7. Control Chart
SIX SIGMA LEVELS

The Six Sigma training levels conform to specified training requirements, education criteria, job
standards, and eligibility.
White Belt
 This is the simplest stage, where:
 Any newcomer can join.
 People work with teams on problem-solving projects.
 The participant is required to understand the basic Six Sigma concepts.
Yellow Belt
Here, the participant:
 Takes part as a project team member.
 Reviews process improvements.
 Gains understanding of the various methodologies, and DMAIC
Green level
This level of expertise requires the following criteria:
 Minimum of three years of full-time employment
 Understand the tools and methodologies used for problem-solving.
 Hands-on experience on projects involving some level of business transformation.
 Guidance for Black Belt projects in data collection and analysis.
 Lead Green Belt projects or teams.
Black Level
This level includes the following:
 Minimum of three years of full-time employment
 Work experience in a core knowledge area
 Proof of completion of a minimum of two Six Sigma projects
 Demonstration of expertise at applying multivariate metrics to diverse business change
settings
 Leading diverse teams in problem-solving projects
 Training and coaching project teams
Master Black Belt
To reach this level, a candidate must:
 Be in possession of a Black Belt certification
 Have a minimum of five years of full-time employment, or Proof of completion of a
minimum of 10 Six Sigma projects
 A proven work portfolio, with individual specific requirements, as given here, for
instance.
 Have coached and trained Green Belts and Black Belts.
 Develop key metrics and strategies.
 Have worked as an organization's Six Sigma technologist and internal business
transformation advisor.
THE SIX SIGMA CERTIFICATION LEVELS

Six Sigma certification is much like the certification system followed in martial arts, where a
wannabe Six Sigma professional begins with the White Belt and upskills his way up to become
the master of the pack with the Master Black Belt; or take an integrated certification offered by
some institutes.
QUALITY CIRCLES (QC)

DEFINITION:
Perhaps the most widely discussed and undertaken intervention of employee involvement is the
quality circle (QC). The concept of QC originally began in the United States and was exported to
Japan in the 1950s. It is mentioned that it is the concept of QC that enabled Japanese firms to
make high quality products at low costs.
What is quality circle?
It is a work group of employees who meet regularly to discuss their quality problems, investigate
causes, recommend solutions, and take corrective actions. Generally, QC is a small group of
employees belonging to the same similar work area.
This is so because the employees doing the similar type of work are well familiar to problems
faced by them. The size of the QC should not be too big so as to prevent some members from
participating meaningfully in its meetings. Generally, six to eight members are considered the
ideal size of the QC.
OBJECTIVES OF QC:
1. Improvement in quality of product manufactured by the organisation.
2. Improvement in methods of production.
3. Development of employees participating in QC.
4. Promoting morale of employees.
5. Respect humanity and create a happy work place worthwhile to work.
FEATURES OF QC
1. Voluntary Groups:
QC is a voluntary group of employees generally coming from the same work area. There is no
pressure from anywhere on employees to join QC.
2. Small Size:
The size of the QC is generally small consisting of six to eight members.
3. Regular Meeting:
QC meetings are held once a week for about an hour on regular basis. The members meet during
working hours usually at the end of the working day in consultation with the manager. The time
of the meetings is usually fixed in advance in consultation with the manager and members.
4. Independent Agenda:
Each QC has its own agenda with its own terms of reference. Accordingly, each QC discusses its
own problems and takes corrective actions.
5. Quality Focused:
As per the very nature and intent of QC, it focuses exclusively on quality issues. This is because
the ultimate purpose of QC is improvement in quality of product and working life.
TECHNIQUES OF QC
The qualities circles use certain techniques to identify analyse and resolve problems; they are:
(a) Brain storming
(b) Data collection
(c) Pareto analysis
(d) Cause and affect diagram.
(e) Line graphs
(f) Frequency distribution.
(g) Scatter diagram, and
(h) Histograms.
TOTAL QUALITY MANAGEMENT
Meaning of TQM:
TQM is an enhancement to the traditional way of doing business. It is the art of
managing the whole to achieve excellence. It is defined both a philosophy and a set of guiding
principles that represent the foundation of a continuously improving organization. It is the
application of quantitative methods and human resources to improve all the processes within an
organization and exceed customer needs now and in the future. It integrates fundamental
management techniques, existing improvement efforts, and technical tools under a disciplined
approach.
DEFINE QUALITY:
 Predictable degree of uniformity and dependability at low cost and suited to the market –
Deming
 Fitness for use-Juran
 Conformance to requirements – Crosby
 Minimum loss imparted by a product to society from the time the product is shipped –
Taguchi
OBJECTIVES OF TQM
 To develop a conceptual understanding of the basic principles and methods associated
with TQM;
 To develop an understanding of how these principles and methods have been put into
effect in a variety of organizations;
 To develop an understanding of the relationship between TQM principles and the
theories and models studied in traditional management;
SCOPE OR PRINCIPLES OF TOTAL QUALITY MANAGEMENT

Commitment from the management:
 Plan (drive, direct)
 Do (deploy, support, and participate)
 Check (review)
 Act (recognize, communicate, revise)
Employee Empowerment
 Training
 Excellence team
 Measurement and recognition
 Suggestion scheme
Continuous Improvement
 Systematic measurement
 Excellence teams
 Cross-functional process management
 Attain, maintain, improve standards
Customer Focus
 Partnership with Suppliers
 Service relationship with internal customers
 Customer-driven standards
 Never compromise quality
TQM BENEFITS AND ADVANTAGES:

 Strengthened competitive position
 Adaptability to changing or emerging market conditions and to environmental and other
government regulations
 Higher productivity
 Enhanced market image
 Elimination of defects and waste
 Reduced costs and better cost management
 Higher profitability
 Improved customer focus and satisfaction
 Increased customer loyalty and retention
 Increased job security
 Improved employee morale
 Enhanced shareholder and stakeholder value
 Improved and innovative processes
JUST-IN-TIME (JIT)
INTRODUCTION
Just-In-Time (JIT) Manufacturing is a philosophy rather than a technique. By eliminating
all waste and seeking continuous improvement, it aims at creating manufacturing system that is
response to the market needs.
The phase just in time is used to because this system operates with low WIP (Work-In-
Process) inventory and often with very low finished goods inventory. Products are assembled
just before they are sold, subassemblies are made just before they are assembled and components
are made and fabricated just before subassemblies are made. This leads to lower WIP and
reduced lead times. To achieve this organizations have to be excellent in other areas e.g. quality.
DEFINITION OF JIT:
 Just-in-time is defined as the production of the minimum number of units in the smallest
possible quantities at the latest possible time, which eliminates the need for inventory. It
does not mean to produce on time but to produce ―just in time‖.
 JIT is defined as an approach for providing smoother production flows and making
continual improvements in processes and products. (Svensson, 2001)
 According to Voss, JIT is viewed as a ―Production methodology which aims to improve
overall productivity through elimination of waste and which leads to improved quality‖.
JIT IN PRODUCTION MANAGEMENT

JIT provides an efficient production in an organization and delivery of only the necessary
parts in the right quantity, at the right time and place while using the minimum facilities‖.
SEVEN WASTES:
Shiego Shingo, a Japanese JIT authority and engineer at the Toyota Motor Company identifies
seven wastes as being the targets of continuous improvement in production process. By attending
to these wastes, the improvement is achieved.
1. Waste of over production eliminate by reducing set-up times, synchronizing quantities and
timing between processes, layout problems. Make only what is needed now.
2. Waste of waiting eliminate bottlenecks and balance uneven loads by flexible work force and
equipment.
3. Waste of transportation establishes layouts and locations to make handling and transport
unnecessary if possible. Minimize transportation and handling if not possible to eliminate.
4. Waste of processing itself question regarding the reasons for existence of the product and then
why each process is necessary.
5. Waste of stocks reducing all other wastes reduces stocks.
6. Waste of motion study for economy and consistency. Economy improves productivity and
consistency improves quality. First improve the motions, then mechanize or automate
otherwise. There is danger of automating the waste.
7. Waste of making defective products develop the production process to prevent defects from
being produced, so as to eliminate inspection. At each process, do not accept defects and
makes no defects. Make the process fail-safe. A quantify process always yield quality
product.
BENEFITS OF JIT
The most significant benefit is to improve the responsiveness of the firm to the changes in the
market place thus providing an advantage in competition. Following are the benefits of JIT:
1. Product cost—is greatly reduced due to reduction of manufacturing cycle time, reduction of
waste and inventories and elimination of non-value added operation.
2. Quality —is improved because of continuous quality improvement programs.
3. Design—Due to fast response to engineering change, alternative designs can be quickly
brought on the shop floor.
4. Productivity improvement.
5. Higher production system flexibility.
6. Administrative and ease and simplicity.
Unit – V
Flexible Manufacturing Systems. Poka yoke-Characteristics, levels, classification,
principles, device. Kaizen-Elements, classification, steps in implementing kaizen.
INTRODUCTION TO FLEXIBLE MANUFACTURING SYSTEM (FMS):

Definition of FMS:
A flexible manufacturing system (FMS) is an arrangement of machines ...
interconnected by a transport system. The transporter carries work to the machines on pallets
or other interface units so that work-machine registration is accurate, rapid and automatic. A
central computer controls both machines and transport system.
Or
FMS consists of a group of processing work stations interconnected by means of an
automated material handling and storage system and controlled by integrated computer control
system.
FMS is called flexible due to the reason that it is capable of processing a variety of
different part styles simultaneously at the workstation and quantities of production can be
adjusted in response to changing demand patterns.
BASIC COMPONENTS OF FMS:

The basic components of FMS are:
1. Workstations
2. Automated Material Handling and Storage system
3. Computer Control System
1. Workstations: In present day application these workstations are typically computer
numerical control (CNC) machine tools that perform machining operation on families of parts.
Flexible manufacturing systems are being designed with other type of processing equipment‗s
including inspection stations, assembly works and sheet metal presses. The various
workstations are
1. Machining centers
2. Load and unload stations
3. Assembly work stations
4. Inspection stations
5. Forging stations
6. Sheet metal processing, etc.
2. Automated Material Handling and Storage system: The various automated material
handling systems are used to transport work parts and subassembly parts between the
processing stations, sometimes incorporating storage into function. The various functions of
automated material handling and storage system are
1. Random and independent movement of work parts between workstations
2. Handling of a variety of work part configurations
3. Temporary storage
4. Convenient access for loading and unloading of work parts
5. Compatible with computer control.
3. Computer Control System: It is used to coordinate the activities of the processing stations
and the material handling system in the FMS. The various functions of computer control
system are:
(i) Control of each work station
(ii) Distribution of control instruction to work station
(iii) Production control
(vi) Traffic control
(v) Shuttle control
(vi) Work handling system and monitoring
(vii) System performance monitoring and reporting
DIFFERENT TYPES OF FMS

The different types of FMS are
1. Sequential FMS
2. Random FMS
3. Dedicated FMS
4. Engineered FMS
5. Modular FMS
Sequential FMS: It manufactures one-piece part batch type and then planning and preparation
is carried out for the next piece part batch type to be manufactured. It operates like a small
batch flexible transfer line.
Random FMS: It manufactures any random mix of piece part types at any one time.
Dedicated FMS: It continually manufactures, for extended periods, the same but limited mix
of piece part batch types.
Engineered FMS: It manufactures the same mix its lifetime.
Modular FMS: modular FMS with a sophisticated FMS host, enables and FMS user to
expand their FMS capabilities in a stepwise fashion into any of the previous four types of
FMS. modular FMS, with a sophisticated FMS host, enables and FMS.
POKA-YOKE
What is Poka-yoke?
Poka-yoke [poka yoke] is a Japanese term that means "mistake-proofing". A poka-yoke
is any mechanism in any process that helps an equipment operator avoid (yokeru) mistakes
(poka). Its purpose is to eliminate product defects by preventing, correcting, or drawing attention
to human errors as they occur.
Poka Yoke, also known as mistake-proofing, is a technique for avoiding simple human errors at
work. The idea was originally developed in the 1960s by Shigeo Shingo who was one of the IE
engineers at Toyota.
EXAMPLES:
BENEFITS OF POKA-YOKE IMPLEMENTATION

A typical feature of poka-yoke solutions is that they don't let an error in a process happen. Other
advantages include:
 Less time spent on training workers;
 Elimination of many operations related to quality control;
 Unburdening of operators from repetitive operations;
 Promotion of the work improvement-oriented approach and actions;
 A reduced number of rejects;
 Immediate action when a problem occurs;
 100% built-in quality control;
 Preventing bad products from reaching customers;
 Detecting mistakes as they occur;
 Eliminating defects before they occur.
CHARACTERISTICS OF POKA YOKE

 Simple and cheap
 Part of process, permitting 100% inspection
 Placed close to where the mistakes occur, providing quick feedback.
 Designed to stop a particular mistake
 A detection device cannot provide a complete error proof solution
 Necessary and not a sufficient solution
LEVELS OF POKA YOKE
CLASSIFICATION OF POKA YOKE
PRINCIPLES OF POKA YOKE
DEVICES OF POKA YOKE
KAIZEN
MEANING OF KAIZEN
Kaizen is a Japanese term meaning "change for the better" or "continuous improvement."
It is a Japanese business philosophy regarding the processes that continuously improve
operations and involve all employees.
The Japanese words ―kai-‖ which means ―change‖ and ―-zen‖ which means ―good.‖ The
popular meaning from Toyota is ―continuous improvement‖ or ―small incremental
improvements‖ of all areas of a company, not just manufacturing.
ELEMENTS OF KAIZEN
Teamwork,
Personal discipline,
Improved morale,
Quality circles, and
Suggestions for improvement
CLASSIFICATION OF KAIZEN
There are actually four types of Kaizen methodologies:
1. Kaizen Teian - Kaizen is Japanese for ―improvement‖ or ―change for the
better‖ while, teian is simply translated to ―Suggestion‖.
2. Kaizen Events - Kaizen events are short duration improvement projects with a specific aim
for improvement
3. Kaikaku - Kaikaku is concerned with making fundamental and radical changes to a
production system, unlike Kaizen which is focused on incremental changes.
4. Kakushin - Kakushin literally means ―innovation‖ or reform as in the reformists in a
political party.
STEPS IN IMPLEMENTING KAIZEN

 Identify an opportunity.
 Analyze the process.
 Develop an optimal solution.
 Implement the solution.
 Study the results.
 Standardize the solution.
 Plan for the future.

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Unit - I

Production function – an Introduction – Definitions and types of production systems.

DEFINITION OF PRODUCTION MANAGEMENT:

FUNCTIONS OF PRODUCTION MANAGEMENT:

IMPORTANCE OF PRODUCTION MANAGEMENT

OBJECTIVE OF PRODUCTION MANAGEMENT

SCOPE OF PRODUCTION MANAGEMENT

MEANING OF PRODUCTION FUNCTION:

The production system has the following characteristics.

Adjustment needed Random Fluctuations Monitor output

TYPES OR CLASSIFICATION OF PRODUCTION SYSTEM

Classification of production systems

1. Defining the levels of strategic intent of the business:

DIFFERENT TYPES OF PRODUCTION STRATEGIES

The types of production strategies under Business Strategies are as follows:

2. Cost leadership strategy

3. Market segmentation strategy

4. Price or cost strategy

7. Product mix or flexibility strategy

10. Flexible response strategy

11. Low cost strategy

Some of the techniques are as follows:

DEMAND FORECASTING: CONCEPT

DEFINITIONS OF DEMAND FORECASTING ARE AS FOLLOWS:

The significance of demand forecasting is shown in the following points:

OBJECTIVES OF DEMAND FORECASTING:

STEPS OF DEMAND FORECASTING:

DEFINITION OF PRODUCT DESIGN

ECONOMIC CONSIDERATIONS PRODUCTION ASPECTS

STAGES IN PRODUCT DESIGN

NEW PRODUCT DEVELOPMENT:

Principles of Process Planning

Process planning in manufacturing may include the following activities:

WHAT IS VALUE ANALYSIS?

Value Analysis Proper:

VALUE ANALYSIS AND VALUE ENGINEERING:

VALUE ANALYSIS VERSUS OTHER CONVENTIONAL APPROACHES:

PHASES OF VALUE ANALYSIS:

MERITS OF VALUE ANALYSIS:

PLANT LOCATION AND LAYOUT

NEED FOR SELECTING A SUITABLE LOCATION

Need For Plant Location

II. In Case of Location Choice for Existing Organization:

2. Manufacturing plants supplying to a specific market area:

III. In Case of Global Location:

VIRTUAL PROXIMITY: With the advance in telecommunications technology, a firm can be in

REASONS FOR GALOBAL/FOREIGN LOCATION

FACTORS AFFECTING IN FACILITY LOCATION:

FACTORS INFLUENCING PLANT LOCATION

PRINCIPLES OF PLANT LAYOUT

CLASSIFICATION AND ADVANTAGES OF PLANT LAYOUT

Combination layout for making different types and sizes of gears

Fixed Position Layout:

Group Layout (or Cellular Layout):

Advantages of Group Technology Layout:

Limitations of Group Technology Layout:

INTRODUCTION OF PRODUCTION PLANNING AND CONTROL:

Definition of Production Planning & Control (PPC)

What is Production Planning & Control (PPC)?

NEED FOR PRODUCTION PLANNING AND CONTROL

Production planning and control is needed to achieve:

Need of Production Planning and Control

OBJECTIVES OF PRODUCTION PLANNING AND CONTROL